Self-Funded Health Insurance Plan

What Does Self-Funded Health Insurance Plan Mean?

A self-funded health insurance plan is a type of coverage provided by an employer to its employees. Unlike traditional insurance plans purchased from an insurance company, this plan is fully financed by the employer. The primary goal of a self-funded insurance plan is to reduce costs, particularly for large organizations.

Insuranceopedia Explains Self-Funded Health Insurance Plan

When offering a self-funded health insurance plan, the employer or organization essentially acts as the insurer for its employees. However, insurance companies may still play a role, as organizations offering self-funded plans often purchase stop-loss insurance. This type of coverage sets a cap on the employer’s financial responsibility; once that threshold is exceeded, the stop-loss insurance covers the excess. Self-funding is generally used by larger employers because smaller businesses often can’t absorb the cost of claims directly, which is part of why small companies tend to evaluate how much small business insurance costs before taking on any added financial responsibility for employee benefits.

As the plan administrator, the company is also responsible for keeping enrollees informed about any changes or updates to the plan. Running a self-funded plan adds another layer of administrative work for the business, on top of the other types of business insurance employers usually need to maintain.