Self-Funded Health Plan

Definition

A self-funded health plan (also called a self-insured plan) is an arrangement in which the employer assumes direct financial responsibility for paying employee medical claims rather than paying a fixed premium to an insurance carrier. The employer typically retains a third-party administrator (TPA) to handle claims processing and partners with a stop-loss carrier to cap exposure from catastrophic claims. Unlike fully insured plans, the employer owns the claims data and keeps any surplus when costs come in below projections.

What This Means for Employers

Self-funding gives you access to your own claims data in real time, which is the foundation for every meaningful cost-management strategy. You design the plan around your workforce rather than accepting a carrier's off-the-shelf product. When your employees stay healthy, you keep the surplus rather than surrendering it to a carrier's profit margin. The tradeoff is that you carry more month-to-month cash flow variability, which is why stop-loss insurance is essential. Most employers with 50 or more employees are viable candidates for some form of self-funding.

Related Terms

• Fully Insured Health Plan
• Level-Funded Health Plan
• Stop-Loss Insurance
• Claims Audit