Have You Fallen Into the Fully Insured Trap?
Most employers stick with fully insured health plans because that's what their broker recommends. Year after year, they accept premium increases of 8-12% and assume this is just "the cost of doing business." But here's the truth your broker might not be telling you: you're likely making insurance carriers rich while missing out on significant savings.
The Fully Insured Comfort Zone
Fully insured plans feel safe. You pay a fixed premium, and the insurance carrier handles everything else. Your broker presents renewal options, you pick the least painful increase, and everyone moves on. It's easy, predictable, and requires minimal effort from your benefits advisor.
This comfort zone comes with a hidden cost. When you consistently receive low premium increases on fully insured plans, you're actually subsidizing other groups with higher claims. Your good experience is padding the carrier's profits while you receive no benefit from your favorable claims history.
When Low Increases Should Raise Red Flags
Here's what most brokers won't tell you: if you're getting renewal increases of 5% or less on your fully insured plan, you're probably a perfect candidate for self-funding. Those low increases mean your group is profitable for the carrier. You're paying premiums that far exceed your actual claims costs.
Insurance carriers use your group's favorable experience to offset losses from other clients. Meanwhile, you're left wondering why your premiums keep climbing despite having healthy employees and good claims experience.
The Self-Funding Alternative
Self-funding puts you in control. Instead of paying fixed premiums to an insurance carrier, you pay only for your actual claims plus administrative costs. When your employees stay healthy, you keep the savings. When claims are higher, stop-loss insurance protects you from catastrophic expenses.
Groups with as few as 15-20 employees can successfully implement self-funded plans. The key is working with an advisor who understands plan design, stop-loss coverage, and claims management. Unfortunately, most brokers lack the knowledge or motivation to properly structure these arrangements.
Why Brokers Push Fully Insured Plans
The truth about broker compensation reveals why self-funding isn't more common. Fully insured plans generate higher commissions and bonus payments for brokers. These override commissions and carrier bonuses can add tens of thousands of dollars to their compensation beyond base commissions.
Self-funded plans typically pay lower commissions, requiring brokers to justify their fees through actual service delivery. Many brokers simply don't have the skills or desire to manage the additional work self-funding requires.
Getting the Right Advisor
You need an advisor who puts your interests first. This means:
Full compensation disclosure - Your advisor should detail every dollar they earn from your account, including override commissions and carrier bonuses.
Alternative funding analysis - Every renewal should include evaluation of self-funded options, even if you ultimately stay fully insured.
Claims data transparency - You should receive detailed reports showing where your healthcare dollars are spent and how your group compares to benchmarks.
Fee-based compensation - Consider working with advisors who base their compensation on services delivered rather than commission maximization.
Your Next Renewal Decision
Your upcoming renewal is an opportunity to evaluate whether you've fallen into the fully insured trap. Start by demanding full transparency from your current advisor about their compensation. Ask for a detailed analysis of your claims experience and how it compares to your premium costs.
If your advisor can't or won't provide this information, it's time to find someone who will. Your health insurance spend deserves the same scrutiny you apply to other major business expenses.
The Bottom Line
The fully insured trap is real, and it's costing employers millions of dollars annually. You need an advisor who prioritizes your financial interests over their commission income.
Don't let another renewal cycle pass without evaluating whether self-funding could put money back in your pocket while providing better benefits for your employees.
Your business deserves a benefits strategy built around your actual needs and claims experience, not what's most profitable for insurance carriers and their sales representatives.
David Goldfarb “Easy is Expensive!”