Self-Funded Plan
What Does Self-Funded Plan Mean?
A self-funded plan is a type of health insurance where a company directly covers the healthcare costs for its employees, rather than relying on the products and services of an insurance company. In a self-funded plan, the company essentially functions as the health insurer and is responsible for paying all claims.
Insuranceopedia Explains Self-Funded Plan
The advantage of self-funded plans is that companies can save money by avoiding the higher premiums that include profit margins typically associated with fully-funded plans or plans purchased through insurance companies. For employees trying to understand their options outside of an employer-sponsored arrangement, choosing health insurance on your own involves a different set of trade-offs around cost and coverage flexibility.
Self-funded plans are usually adopted by larger companies.
To mitigate excessive risk, companies with self-funded plans often purchase stop-loss insurance. This coverage protects against claims that exceed a predetermined amount, ensuring financial stability in case of unusually high healthcare costs. Stop-loss thresholds and overall plan costs vary considerably by employer, which is part of why lowering health insurance costs looks different depending on whether a plan is self-funded or fully-insured.
