All group medical benefit plans fall into one of two categories: self-funded or insured. The choice of one over the other should not be made arbitrarily. Each type carries its own set of administrative rules and legal constraints.
Most employers with more than 200 employees self-insure some or all of their employee health benefits. Many employers with fewer than 200 employees also self-fund, but these employers require greater stop-loss insurance protection than larger employers. As a general rule, employers with fewer than 100 employees fully insure their group benefits.
What is Self-Funding?
A self-funded health plan is one in which the employer eliminates obligations to a health plan provider by assuming the financial risk for providing health care benefits directly to its employees.
Rather than playing fixed premiums to an insurance company — which, in turn, assumes the financial risk — the employer pays for medical claims out of pocket as they are incurred.
It’s important to be a wise health care consumer, especially when your employer assumes the financial risk of providing you with health care benefits.
There are numerous well-documented advantages to self-funding for employers that manage risk well, including:
- Reduced insurance overhead costs
- Reduced state premium taxes
- Avoidance of state-mandated benefits
- Choosing benefits services à la carte
- Flexibility in plan designs, administration, and offered services
- Customizable stop-loss insurance to reduce the risk of high claims
- Improved cash flow
- Additional cash flow if reserves are held in an interest-bearing account