With self-funding, an employer pays employee medical claims directly rather than buying a fully insured plan, usually adding stop-loss insurance to cap large losses. It can reduce cost and add flexibility but moves claims risk onto the employer.
A level-funded plan is a self-funded arrangement packaged to feel like a fully insured one: the employer pays a fixed monthly amount covering claims funding, stop-loss premium, and administration, with a potential year-end refund if claims run low. It’s popular with small and midsize employers.
In a fully insured plan the employer pays premiums and the insurance carrier bears the claims risk. In a self-funded plan the employer pays claims directly (usually with stop-loss protection and a third-party administrator), taking on more risk in exchange for cash-flow control, claims data, and ERISA preemption of many state insurance mandates.
In a self-funded plan, the employer pays employees’ medical claims directly out of its own funds, usually with a third-party administrator (TPA) to process claims and stop-loss insurance to cap catastrophic risk, instead of paying fixed premiums to an insurer.
Employers self-fund to gain control: access to their own claims data, ERISA preemption of state mandates and premium taxes, cash-flow advantages, the ability to keep savings in a good year, and freedom to customize the plan and its cost-containment strategies. The trade-off is taking on claims risk.