Self-Funded vs. Fully Insured Health Plans: What Every Employer Needs to Know

If you’ve been offering group health insurance for more than a few years, you’ve probably heard your broker mention “self-funding.” And if you haven’t, you should ask — because for many mid-size employers, switching from a fully insured plan to a self-funded structure is the single highest-impact benefits decision you can make.

This guide explains the difference, who self-funding is right for, and what to watch out for.

The Basics: How Each Model Works

Fully Insured Plans

In a traditional fully insured arrangement, you pay a fixed monthly premium to a carrier. The carrier assumes all the financial risk — they pay claims regardless of how much your employees use the plan. Your cost is predictable, but you pay for that predictability: the carrier builds a profit margin and risk load into your premium.

Who controls the plan: The carrier
Who pays claims: The carrier
Your monthly cost: Fixed premium
Regulatory framework: State insurance law (subject to state mandates)

Self-Funded Plans

In a self-funded arrangement, you pay claims directly — typically through a third-party administrator (TPA) who processes claims on your behalf. You pay only for actual healthcare used, plus administrative fees. To protect against catastrophic claims, most employers buy stop-loss insurance that caps their exposure above a certain threshold.

Who controls the plan: You (the employer)
Who pays claims: You (via TPA)
Your monthly cost: Variable (actual claims + fixed admin fees)
Regulatory framework: Federal law (ERISA) — exempt from most state mandates

The Financial Case for Self-Funding

The core financial argument is simple: you’re currently paying a carrier to take on risk that may never materialize. If your employees are relatively healthy and don’t generate large claims, you’re overpaying.

Here’s what the numbers typically look like:

Fully insured: $850/employee/month (fixed)
Self-funded equivalent: $650/employee/month in claims + $120/month in admin/stop-loss = $770/month
Annual savings on 200 employees: ~$192,000

For many companies, the savings in a good claims year are substantial. In a bad claims year, stop-loss coverage limits the downside.

What Is Stop-Loss Insurance?

Stop-loss insurance is what makes self-funding viable for employers who aren’t Fortune 500 companies. There are two types:

Specific stop-loss: Covers individual catastrophic claims above a threshold (called the specific deductible or attachment point). For example, if your specific deductible is $150,000 and one employee has a $400,000 cancer treatment, your stop-loss carrier pays the $250,000 above the threshold.

Aggregate stop-loss: Caps your total plan liability across all employees in a plan year. If your aggregate attachment point is 125% of expected claims and your workforce has an unusually bad year, your stop-loss kicks in to cover the excess.

A qualified broker who specializes in self-funded plans will help you structure stop-loss coverage that’s appropriate for your employee count and risk tolerance.

Who Is Self-Funding Right For?

Self-funding is generally a good fit when:

You have 50+ employees — under 50, stop-loss pricing is expensive enough to erode the savings
Your claims experience is stable — if you’ve had predictable utilization for 2–3 years, you have data to work from
You want plan design control — self-funded plans can be structured without state mandate requirements
You want cost transparency — fully insured carriers rarely show you your actual claims data; self-funded plans give you full visibility

Self-funding may not be the right fit if:

Your workforce is small (<50 employees) and a single large claim could be financially disruptive even with stop-loss
Your claims experience is highly volatile
Your HR team has limited capacity for the administrative complexity

Level-Funded Plans: The Middle Ground

Level-funded plans are a hybrid option that has grown rapidly among small and mid-size employers. They’re structured like self-funded plans — with built-in stop-loss — but priced like fully insured plans, with a fixed monthly payment.

At the end of the plan year, if actual claims were lower than the level-funded amount, you get a refund. If they were higher, your stop-loss covers the difference.

Level-funded plans give smaller employers the cost transparency and potential savings of self-funding without taking on as much financial risk. Many employers in the 10–100 employee range find this to be the optimal structure.

What to Ask Your Broker

If you’re currently on a fully insured plan and want to explore self-funding or level-funding, ask your broker these questions:

“What did our claims look like vs. premium paid over the last 2–3 years?” — This tells you whether you were over-insured.
“What would a comparable self-funded plan have cost us?” — A good broker can run this analysis.
“What stop-loss structure would you recommend for our headcount?” — Specific deductible amounts and aggregate factors matter.
“Who would be our TPA?” — Some TPAs are carrier-affiliated; others are independent with better cost management tools.
“How would this affect our state compliance obligations?” — Self-funded plans are ERISA-governed and exempt from most state insurance mandates.

Finding a Self-Funded Health Plan Specialist

Not every broker has deep expertise in self-funded plan design. It’s a specialized area that requires knowledge of stop-loss markets, TPA relationships, pharmacy carve-outs, and actuarial analysis.

BrokerClaim’s directory lets you filter specifically for brokers who specialize in self-funded and level-funded plans. Every profile is NIPR-verified and shows carrier relationships, credentials, and client industries.

Find a self-funded health plan specialist near you →

BrokerClaim is the national marketplace for group health insurance brokers. This article is for informational purposes only and does not constitute legal, tax, or benefits advice. Consult a licensed broker for guidance specific to your organization.