Operations
Employer's Guide to Health Plan Options
An overview of common health plan structures available to employers, including key considerations for choosing the right approach.
AEA Editorial Team
Health Plan Structures
Understanding the available health plan structures helps employers make informed decisions about how to provide coverage while managing costs.
Fully Insured Plans
The traditional model where the employer pays a fixed premium to an insurance carrier.
Advantages:
- Predictable monthly costs
- Insurance carrier assumes all claim risk
- Simpler administration
- Regulatory compliance handled primarily by the carrier
Considerations:
- Less flexibility in plan design
- Premiums include carrier profit margins and risk charges
- Annual renewal increases can be significant
- Limited access to claims data
Self-Funded Plans
The employer pays claims directly rather than purchasing insurance.
Advantages:
- Greater plan design flexibility
- Access to detailed claims data
- Potential cost savings (no carrier profit margins)
- Exempt from state insurance premium taxes
- Federal ERISA preemption of state insurance mandates
Considerations:
- Employer assumes financial risk for claims
- Requires stop-loss insurance to limit catastrophic exposure
- More complex administration
- Typically requires a third-party administrator (TPA)
Level-Funded Plans
A hybrid approach combining elements of fully insured and self-funded plans.
Advantages:
- Fixed monthly payments for budgeting predictability
- Potential refund if claims are lower than expected
- Access to claims data
- Self-funded legal status in most states
Considerations:
- Maximum liability is capped but higher than fully insured premiums
- Still subject to medical underwriting
- May not be available in all states or for all group sizes
Choosing the Right Structure
Consider:
- Your organization's risk tolerance
- Cash flow and budget predictability needs
- Employee demographics and anticipated utilization
- Administrative capacity
- Desire for plan design flexibility
- Access to claims data for decision-making
No single structure is best for all employers. Review your options annually as your organization grows and the market changes.
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