A self-funded health plan — also called a self-insured plan — is a way for an employer to sponsor group medical coverage without buying a traditional fully insured group policy for the claims themselves. The employer is responsible for paying covered claims under the plan, usually through a third-party administrator. Most employers that use this structure also buy stop-loss insurance so that claims above agreed amounts are reimbursed to the employer or the plan.
This is a standard funding method for many mid-size and large employers, including companies in the 51–200 and 201+ ranges. It is also the legal category that generally includes level-funded plans, which use stop-loss and a fixed monthly funding amount so the cash outlay is meant to stay level during the year. This page describes a traditional self-funded design. It is not a claim that self-funding costs less than fully insured coverage, and it is not a recommendation that every employer above 50 employees should use one.
Ares Benefit Group advises businesses of every size, from 2 employees to 500+. Small-business coverage remains the core of the practice. We will put a self-funded design on the table when it can actually be built for your census, and we will compare it with a fully insured large-group policy and with a level-funded arrangement on the same data.
How the structure works
In a typical self-funded arrangement, several roles sit around the employer’s plan:
- The employer sponsors the plan, is responsible for claims the plan covers, and sets — with advice — the benefits, eligibility, and contribution.
- A third-party administrator, which may be an independent administrator or an insurer acting in an administrative role, processes claims, provides access to a provider network, and handles much of the day-to-day administration.
- A provider network and pharmacy arrangement determine where employees can receive care in-network and how prescriptions are priced. These are contracted services. They are not, by themselves, a fully insured health policy.
- Stop-loss insurance reimburses the employer (or the plan) when claims exceed a set amount — an attachment point — for a single person, for the group as a whole, or both. The U.S. Department of Labor has described this use of stop-loss with self-insured group health plans: the employer remains responsible for claims below those attachment points, and stop-loss generally protects the employer against losses. It does not usually guarantee the payment of benefits to plan participants.
Employees receive a summary of the plan’s benefits and use the network and claims process the administrator provides. From the employee’s point of view, the plan should still feel like an employer-sponsored medical plan: an ID card, a network, a deductible, and a way to have claims paid. The difference is in who is funding those claims.
Claims data becomes part of the annual work. A year of paid claims, large-claim information the administrator can share, and enrollment counts are what a renewal, a stop-loss placement, and a plan-design discussion should be based on. We will review that data with you. We will not invent a savings percentage from it.
How this compares with fully insured and level-funded coverage
The table below is a structural comparison. It is not a cost comparison, and it is not an argument for any one design.
| Fully insured group policy | Level-funded arrangement | Traditional self-funded plan | |
|---|---|---|---|
| Monthly payment | A premium paid to the insurer | A fixed funding amount for expected claims, administration, and stop-loss | Administration and stop-loss premiums, plus claims as they are paid, up to the stop-loss terms |
| Who holds claims risk below any cap | The insurer, under the policy | The employer, up to the stop-loss attachment points | The employer, up to the stop-loss attachment points |
| Protection against large claims | Built into the fully insured policy | Stop-loss insurance, on the terms of that contract | Stop-loss insurance, on the terms of that contract |
| Unused claims funding | Not a feature of a fully insured premium | May be returned or credited if the contract provides for it | Claims that are not incurred are simply not paid; there is no separate “surplus” unless the contract creates one |
| Cash-flow pattern | A set premium | A set monthly amount during the year | More variable during the year, within the stop-loss terms |
| Employer responsibilities | Still an employer-sponsored plan, with the ERISA and notice duties that apply | Plan-sponsor and funding responsibility, because the employer is closer to the claims | The same, often with more ongoing claims and data work |
A fully insured plan is the right answer for many companies. A level-funded plan can be a fit when a fixed monthly amount is important and a contract can be issued. A traditional self-funded plan can be a fit when the employer wants to fund claims as they come in, has the cash-flow tolerance for that pattern, and is prepared to run the plan-sponsor work that comes with it. We will say so when one of these is not available for your census.
Some self-funded or level-funded groups also ask about reference-based pricing as a claims-payment method, or about a captive as a way to finance stop-loss. Those are design choices inside a self-funded structure, not replacements for it.
Employer responsibilities
A self-funded group health plan is generally an employee welfare benefit plan under ERISA. The employer, as plan sponsor, has duties that can include maintaining a plan document, providing a summary plan description, following claims and appeals procedures, and sending required notices. Some plans must also file an annual Form 5500. A limited exemption can apply to certain small welfare plans — generally, plans with fewer than 100 participants at the beginning of the plan year that are unfunded, fully insured, or a combination of both — but a growing or self-funded group should not assume it is exempt. We will flag the filing question; counsel or a third-party administrator should confirm it.
If the company is an applicable large employer, affordability and minimum-value testing, and Forms 1094-C and 1095-C, are part of the year’s work. An employer that sponsors self-insured coverage also has information-reporting responsibilities as a provider of minimum essential coverage, whether or not it is an applicable large employer. Federal COBRA rules generally apply once the employer has 20 or more employees, and some states have their own continuation rules.
Self-funded plans are generally subject to federal group-health-plan rules. Many state insurance benefit mandates that apply to fully insured policies do not apply in the same way to a self-funded ERISA plan. That is a legal distinction, not a reason to treat either structure as better, and it is not a reason to ignore state laws that still do apply. Stop-loss policies themselves are insurance contracts, and states regulate stop-loss differently.
This is a briefing, not legal advice and not an offer of coverage.
What we review before anyone signs
- The benefit design, eligibility, waiting periods, and contribution schedule
- The administrator, the network, and the pharmacy arrangement
- The stop-loss attachment points, the people or claims they apply to, the contract period in which claims must be incurred and paid, and any run-out terms after the year ends
- Cash-flow expectations during the year, including how claims are funded and how often they are paid
- ERISA documents and notices, COBRA administration, and the reporting calendar
- How the design compares with a fully insured or level-funded option, and with an ICHRA, on the same census
- The renewal process, including claims data the administrator will produce in time to go to market
If you already have a broker and want a structured comparison, see a benefits RFP or changing your benefits broker of record. Ongoing renewal and compliance work is described under employee benefits consulting.
Our agents are licensed in all 50 states. The firm is based in Tampa and works with Tampa Bay employers as well as companies with people in other states.
Talk with an advisor: (813) 540-1299Frequently asked questions
Is a self-funded plan the same as a level-funded plan?
They are related. A level-funded arrangement is generally a self-insured design that uses stop-loss and a fixed monthly funding amount so the employer’s cash outlay is meant to stay level during the year. A traditional self-funded plan funds claims as they are paid, plus administration and stop-loss. We compare both with fully insured coverage when more than one can be issued.
Does stop-loss mean employees cannot have a claim denied?
No. Stop-loss is generally coverage for the employer, not a second health policy for the employee. Benefits are determined under the employer’s plan. The Department of Labor has noted that stop-loss insurance does not usually guarantee payment of benefits to participants.
Can a company just above 50 employees self-fund?
Sometimes. Underwriting, stop-loss terms, administrator requirements, and state stop-loss rules all affect whether a plan can be built. We will check that against your census rather than assume a minimum size.
Do we still have Affordable Care Act duties if we self-fund?
Yes, the duties that apply to the employer and to the plan still have to be met. Funding method does not remove applicable large employer rules, information reporting, or the group-health-plan standards that apply to the plan. A tax advisor and, where needed, counsel should review the specific duties that apply to you.
Will we save money if we self-fund?
We will not use a savings percentage on this page. Results depend on claims, stop-loss terms, administration fees, and the fully insured alternative on the same census. Those figures belong to a specific proposal.
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