Definition - What does Self-Funded Plan mean?
A self-funded plan is a type of health insurance in which a company directly funds the costs of health care for its employees instead of using the products and services of an insurance company. So, with a self-funded plan, companies essentially act as health insurers. Companies who self-fund their plans are responsible for paying out all claims.
Insuranceopedia explains Self-Funded Plan
The benefit of self-funded plans is that companies can save money because they do not have to pay the increased premiums to account for profit margin that are necessary with fully-funded plans or plans purchased through a health insurance company.
It is typically larger companies who choose to use self-funded plans.
Companies who use self-funded plans often purchase stop-loss insurance to protect them from over-exposure to risk. Sop-loss insurance coverage will cover losses for claims that exceed a certain pre-specified amount.