How to Calculate Fully Insured Equivalent Rates

Fully Insured Equivalent (FIE) Calculator

Convert self-funded costs into a monthly rate per employee.

function calculateFIE() { var claims = parseFloat(document.getElementById('annualClaims').value) || 0; var stopLoss = parseFloat(document.getElementById('stopLoss').value) || 0; var admin = parseFloat(document.getElementById('adminFees').value) || 0; var ibnr = parseFloat(document.getElementById('ibnr').value) || 0; var headcount = parseFloat(document.getElementById('enrollment').value) || 0; if (headcount <= 0) { alert("Please enter a valid number of enrolled employees."); return; } var totalAnnualCost = claims + stopLoss + admin + ibnr; var monthlyTotalCost = totalAnnualCost / 12; var pepmRate = monthlyTotalCost / headcount; document.getElementById('totalAnnualDisplay').innerText = "$" + totalAnnualCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('monthlyRateDisplay').innerText = "$" + pepmRate.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('fieResult').style.display = 'block'; }

What is a Fully Insured Equivalent (FIE) Rate?

A Fully Insured Equivalent (FIE) rate is a financial metric used by companies with self-funded health insurance plans. It represents the estimated cost per employee per month (PEPM) that the employer would pay if they were using a traditional fully insured medical plan. Since self-funded plans pay for claims as they occur rather than a fixed premium, the FIE serves as a "budgeted rate" to compare against market quotes and to set COBRA premiums.

How to Calculate Fully Insured Equivalent Rates

To calculate the FIE rate accurately, you must aggregate all costs associated with the health plan over a 12-month period. The formula is as follows:

FIE = (Claims + Stop-Loss + Admin + Reserves) / Total Enrollment / 12 Months

• Claims Paid: The total dollar amount of medical and pharmacy claims paid by the plan during the year.
• Stop-Loss Premiums: The cost of specific and aggregate reinsurance to protect the plan against catastrophic claims.
• Administrative Fees: Payments to Third Party Administrators (TPAs), PPO network access fees, and broker commissions.
• IBNR (Incurred But Not Reported): An actuarial estimate of claims that have occurred but have not yet been processed or paid.

Why FIE Rates Matter for Employers

Calculating the FIE rate is critical for three primary reasons:

1. Budgeting and Forecasting: It allows finance teams to treat health benefits as a predictable line item, even though actual cash flow fluctuates.
2. Benchmarking: By converting self-funded costs to a PEPM rate, employers can compare their plan performance directly against fully insured quotes from carriers like UnitedHealthcare, Cigna, or Aetna.
3. COBRA Compliance: Under federal law, self-insured employers must determine a "premium" to charge COBRA participants. The FIE rate (calculated over a 12-month period) typically serves as the basis for this premium plus a 2% administrative load.

Real-World Example

Imagine a company with 100 employees. Over one year, they paid $600,000 in claims, $150,000 in stop-loss insurance, $50,000 in TPA fees, and set aside $20,000 for IBNR reserves.

Total Annual Cost: $600,000 + $150,000 + $50,000 + $20,000 = $820,000.

Monthly Cost: $820,000 / 12 = $68,333.

FIE Rate (PEPM): $68,333 / 100 Employees = $683.33 per month.

This $683.33 is the number the employer would compare against a fully insured quote to see if self-funding is actually saving the organization money.