Self-Funded Plans
What Is Self-Funded Plans?
Self-funded plans, also known as self-insured plans, are employee benefit plans in which an employer pays the cost of employee benefits directly rather than purchasing a traditional insurance policy from an insurance company.
These plans are most commonly used for health insurance benefits.
Why It Matters
Self-funded plans allow employers to control benefit costs and design customized benefit programs for employees. Instead of paying fixed premiums to an insurance provider, the employer assumes the financial risk for claims.
Many large employers use self-funded plans to manage healthcare costs more efficiently.
How Self-Funded Plans Works
Under a self-funded plan, the employer sets aside funds to pay employee healthcare claims as they occur.
Employers may still work with third-party administrators to manage claims processing, provider networks, and administrative services.
Key elements often include:
- employer-funded claim payments
- administrative services provided by third parties
- stop-loss insurance to limit financial risk
Example
A large company may create a self-funded health plan where the employer pays employee medical claims directly instead of paying premiums to an insurance provider.
Self-Funded Plans vs Fully Insured Plans
- Self-funded plans pay benefits directly from employer funds.
- Fully insured plans involve purchasing insurance coverage from an insurance company.
FAQs About Self-Funded Plans
Who typically uses self-funded plans?
Large employers often use them to manage healthcare benefits.
Do employers assume financial risk?
Yes. Employers are responsible for paying claims.
Can employers limit risk in self-funded plans?
Yes. Stop-loss insurance may help limit large claim costs.
Related Terms
