Your Healthcare Plan:
To Fully Insure
or
Self Insure?
September 2010
John Faustgen, CEBS
Benefits Manager - Land O’Lakes, Inc.
About Land O’ Lakes, Inc.
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Fortune 250 Company with $12.1 Billion in revenue
Headquartered in Arden Hills, MN
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One of America’s premiere farmer-owned cooperatives
Extensive line of agricultural supplies, state-of-the-art production
and business services to farmers, co-ops and customers
Leading marketer of dairy-based products for consumers,
foodservice professionals and food manufacturers.
Conducts business in all 50 states as well as
internationally
More than 12,000 employees, at 200+ Locations
Approximately 1,500 union employees participate in
Land O’Lakes Benefit Plans.
What is Fully-Insured?

When you buy a pre-packaged medical
plan on the open market.
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In effect you are paying someone else (an
insurance company) to take on the risk and
administrative expense of a medical plan.
This is known as being “fully-insured” or
“fully-funded.”
What is Self-Insured?

When you design and pay your group’s
actual medical plan claims and plan
expenses.
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You assume the risk of the costs of the
groups claims. In essence you are your own
insurance company.
This is known as “self-funded” or “selfinsured.”
Comparison/Example
Claims Turn Out as Projected
Funding Type
Employee
Count
Claims
Admin + Risk
Cost
Insurer Profit or
(Loss)
Net Business
Cost
Fully-Insured
500
$3,000,000
$750,000
Self-Insured
w/Stop Loss
500
$250,000
$3,000,000
$750,000
Includes SL Premiums
N/A
$4,000,000
Premiums Paid
$3,750,000
Actual costs incurred
Comparison/Example
Claims 10% Less than Projected
Funding Type
Employee
Count
Claims
Admin + Risk
Cost
Insurer Profit or
(Loss)
Net Business
Cost
Fully-Insured
500
Self-Insured
w/Stop Loss
500
$2,700,000
$750,000
$2,700,000
$750,000
Includes SL Premiums
$550,000
N/A
$4,000,000
Premiums Paid
$3,450,000
Actual costs incurred
Comparison/Example
Claims 10% Greater than Projected
Funding Type
Employee
Count
Claims
Admin + Risk
Cost
Insurer Profit or
(Loss)
Net Business
Cost
Fully-Insured
500
$3,300,000
$750,000
Self-Insured
w/Stop Loss
500
($50,000)
$3,300,000
$750,000
Includes SL Premiums
N/A
$4,000,000
Premiums Paid
$4,050,000
Actual costs incurred
Self-Funding Features and Benefits
Feature
 Increase Cash Flow
 Control of Reserves
 Flexibility of plan design,
banking and re-insurance
levels
 Portability of Plan Design
 Eliminates premium tax in
many states
 Not subject to state
regulations or mandates
Benefit
 Use of $ until needed
 More Funds Available
 More control in plan
design, payments and reinsurance levels
 Less disruption for EEs
 Savings of 2-4% on
insured cost reductions
 Eliminate unnecessary
costly mandated benefits
Fully-Insured Features and Benefits
Feature
 Predictable Monthly Cost
 Leverage Insurance
Company’s Experience
and Financial Scale
 Demands Less Work to
Set-up Medical Plan
 Most Legal Regulations &
Compliance Requirements
Handled by Insurer
Benefit
 Easier Budgeting
 Less Plan Overhead
Resources needed and
Transfer of Risk
 More straightforward for
Buyer
 Reduced Plan Legal and
Fiduciary Responsibilities
Detriments of Self-Insured
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Requires More Time Involvement in
Benefit Design, Installation and Ongoing
Medical Plan Management
Harder to Budget Medical Plan Cost
Fiduciary and Legal Responsibilities
Claims Run-off Liability (After Plan
Termination Date)
Smaller Group with ongoing High Claims
Detriments of Fully-Insured
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Limited Selection of Medical Plan Designs
Must Adapt Insurer’s Administrative Rules
Insurer Sets Medical Plan Cost (Premiums)
Added Cost for state premium tax,
mandated benefits and insurer profit.
No control in setting future plan trend or
reserve levels
QUESTIONS?