Fully insured is the default structure for small and mid-market employer health benefits. An employer pays a fixed monthly premium per covered employee; the insurance carrier pays the claims, manages the network, and assumes the underwriting risk. If claims run high, the carrier absorbs the loss. If claims run low, the carrier keeps the margin. Roughly 40% of U.S. covered workers are in fully insured plans according to Kaiser Family Foundation data, with the share concentrated in employers under 500 employees.
How Fully Insured Plans Actually Work The employer contracts with an insurance carrier (typical examples: BCBS, UnitedHealthcare, Aetna, Cigna) for a defined benefit package at a set per-employee-per-month premium. The employer and employee split the premium, usually 70/30 or 80/20 for the employee-only tier. The carrier builds the provider network, processes claims, and issues ID cards.
Rates are renegotiated annually based on the previous year's claims experience (for groups over ~50 lives) or community rating (for smaller groups). Claims experience that runs high usually produces double-digit renewal increases.
How Is It Different From a Self-Insured Plan? In a self-insured plan, the employer pays claims directly and uses a third-party administrator (often a carrier acting as ASO) for network access and claims processing. The employer bears the risk and keeps the margin. Self-insured plans are regulated by ERISA at the federal level and are generally preempted from state insurance laws. Fully insured plans are regulated by state departments of insurance.
When Does a Fully Insured Plan Make Sense? Fully insured is usually the right choice for employers under about 200 employees, where claims volatility from a single catastrophic case can swamp a self-funded budget. It's also simpler administratively and is the default offering of most brokers serving small and mid-market accounts.
Above 500 employees, self-insured economics usually win because the employer's claims pool is large enough to be actuarially predictable, and the savings from cutting out the carrier's risk margin become material.
State Regulation of Fully Insured Plans Because fully insured plans are state-regulated, they're subject to state-specific benefit mandates (fertility coverage, autism coverage, mental health parity at the state level, tobacco cessation). These mandates can add 5-10% to premium depending on the state. They don't apply to self-insured plans under ERISA preemption.
State small-group reform laws also set rating rules that restrict how fully insured premiums can vary by age, industry, and health status. The rules differ significantly across states.
Choosing a Fully Insured Plan as Part of Your Benefits Strategy Fully insured plans trade cost efficiency for simplicity and risk protection. For most small and mid-market employers, that trade-off is the right one. Review the plan annually against self-insured alternatives as headcount grows, because the break-even point often sneaks up. Document the network, the PCP requirements, the referral rules, and the out-of-network cost share so employees can make informed choices at enrollment. For broader context, see employee benefits , HMO , and Health Care FSA for how the FSA pairs with fully insured coverage.
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