Self-Funded Health Plan
A plan where the employer directly pays employee health claims out of its own funds, rather than paying a fixed premium to an insurance carrier.
In a self-funded arrangement, the employer takes on the financial risk of paying employee medical claims directly, instead of transferring that risk to an insurance carrier for a fixed premium. A third-party administrator (TPA) typically handles claims processing and network access, and the employer almost always layers on stop-loss insurance to cap exposure to any single catastrophic claim or an unusually expensive year overall.
Why larger employers choose it: if your group is large enough to have predictable claims patterns, self-funding can mean real savings — you’re not paying a carrier’s profit margin and risk premium on top of expected costs, and you get much more visibility into what’s actually driving your healthcare spend.
The catch: self-funding shifts real financial risk onto the employer, and it comes with more administrative and compliance responsibility (ERISA reporting, plan document maintenance, claims oversight). It’s generally best suited to employers with 100+ employees, though some smaller groups use it alongside stop-loss coverage.
Have questions about how this applies to your renewal?
Talk to a group health insurance broker who specializes in your situation.