1.  

Under a fully-insured plan, an employer pays a pre-determined fixed premium to a health insurance company, and that insurance company assumes the full financial risk of providing the medical benefits and administrative services to the plan’s members. That premium is actuarially projected to cover anticipated claim costs, the company’s overhead, commissions, reserves, risk charges, premium taxes, and a profit margin. If there is any money left over at the end of the year, the insurance company keeps it.

2.  

Under a self-funded plan, the employer assumes some or all the financial risk for the employee benefit plan. Typically employers pay the predictable claims directly out of their own account (an interest-bearing bank trust) and purchase stop-loss (reinsurance) to pay for unpredictable individual (specific) and aggregate catastrophic claims. The employer becomes the fiduciary of their plan and retains control over their health plan reserves, enabling maximization of interest income. The majority of companies who choose to self-fund do not self-administer. Plan administration requires special expertise in medical and cost management, legal/compliance issues, vendor management; and an investment in systems and personnel to provide claims management, customer service and data reporting. As a third-party administrator (TPA), EPOCH is hired by employers to manage their self-funded plans. The employer pays monthly fixed costs, and only pays for actual claims after they are adjudicated, typically 30 to 90 days after medical care is rendered.