Two employers paid $32,000 and $78,000 for the same hip replacement. The difference was the contract — and we ended on a question: which side of it is your company on? This is the answer. To see it, you have to understand what you're actually buying when you buy fully insured coverage.
When an employer buys a fully insured health plan, it feels clean. You pay a premium. The carrier takes the risk. If claims come in high, that's the carrier's problem. If someone has a catastrophic year, you're covered. For a lot of companies, that trade is worth it — and it's important to say that plainly.
But "clean" and "transparent" are not the same thing. In a fully insured arrangement, you write one check and you get one number back at renewal. What you almost never get is the thing that number is built from: the actual claims your own employees generated. You're buying a price without seeing the receipt.
So let's open the receipt. Here is where every dollar of your premium actually goes — and the four terms that let you read the contract yourself.
Part 01Where the Premium Dollar Goes
By law, a large-group carrier has to spend most of your premium on actual care. But "most" leaves real room — and the part that isn't claims is where the carrier lives.
That 85/15 split is the Affordable Care Act's Medical Loss Ratio rule, and on its face it sounds protective. It isn't as protective as it looks — and understanding why is the whole game. Here's the vocabulary that lets you see it.
Part 02Four Terms That Decode Your Renewal
The share of premium a carrier must spend on care. Large group: 85%. Small group: 80%. Fall below it and the carrier owes a rebate. Crucially, it's measured on a three-year rolling average across the carrier's entire book in your state — not on your company alone.
Why it matters: your healthy group can subsidize the carrier's sicker groups and still never trigger a rebate. When rebates do land, they're often just $10–$30 per employee. The floor protects the pool, not you.
Everything in your premium that isn't expected claims. Administration, network access fees, commissions, margin, risk charge. In a fully insured plan, retention is bundled invisibly into one premium number — you're told the total, never the breakdown.
Why it matters: you can't negotiate a cost you can't see. Retention is the line a self-funded employer gets itemized and a fully insured employer never does.
Claims that have happened but haven't hit the books yet. An employee had surgery in December; the claim lands in February. Carriers hold reserves for this lag — and build assumptions about it into your rate.
Why it matters: IBNR is where conservative assumptions quietly inflate a premium. When you control your own plan, you hold that reserve — and you get it back if it isn't needed.
The projected annual increase in health costs — the number that drives your renewal before anyone looks at how your group actually performed. A carrier applies a trend assumption of, say, 8–10% to next year's rate as a starting point.
Why it matters: in a fully insured renewal, trend is often applied to you whether or not your group's real claims justify it. Good experience doesn't automatically lower your rate — you have to be able to prove it, and for that you need the data.
Put those four together and the picture sharpens. You're charged a premium built on trend, padded by IBNR assumptions and retention you can't see, governed by an MLR floor that protects the carrier's whole book rather than your specific group.
Part 03The One Insight That Changes Everything
Here's the fact that reframes the entire arrangement. In a fully insured plan, when your company has a good year — low claims, healthy workforce, no catastrophes — where does the money you didn't spend on care go?
Not to you. To the carrier.
That's the trade most employers never see clearly. You've priced your risk into the premium. If the risk doesn't materialize, the savings don't come back — they become the carrier's margin. You absorbed the cost of insuring against a bad year, and handed away the upside of a good one.
And this isn't a fringe strategy on the other side. It's already the norm.
Part 04What Changes When You Take Control
When an employer self-funds, it stops buying a premium and starts paying its own claims directly, with stop-loss insurance capping the catastrophic risk. The mechanics shift, but the real change is what becomes visible and yours.
- One premium number, no breakdown
- Claims data you can't see
- Retention bundled and hidden
- Good years keep the carrier, not you
- Renewal driven by trend, not your experience
- No lever to change the network contract
- Claims data is yours to see and analyze
- Retention itemized and negotiable
- A good year's savings stay with you
- Unused reserves come back, not gone
- You can price against a real benchmark
- The pricing models from Part Two become yours to choose
This is not a claim that self-funding is right for every employer. Groups with volatile claims, thin cash reserves, or very small headcounts have real reasons to value the risk transfer that fully insured provides — and captives and other alternative structures exist precisely to bridge that gap for mid-sized employers who aren't ready to go it alone. The point isn't that fully insured is a trap. It's that most employers land in it by default, never having seen the receipt they were entitled to read.
The Takeaway
Fully insured isn't a scam — it's a trade. You buy certainty and hand away visibility and upside. For some employers, that's the right trade. But you can't know whether it's right for you until you can see what you're actually spending on care. And the moment you can see it, most of the questions in this series stop being abstract — and start being yours to answer.
At Hotchkiss, we help mid-market employers move from renting a premium to owning their health plan — with the claims data, the contract structure, and the funding strategy laid out in the open. If this series made you wonder which side of the contract you're on, that's exactly the conversation worth having.
Talk to Tess— Tess
