A self-funded health plan is an arrangement where an employer pays its employees’ medical claims directly instead of paying fixed premiums to an insurance carrier. The employer takes on the risk and keeps the reward: when claims come in lower than expected, the savings stay with the company instead of padding an insurer’s profit.
For years, most small and mid-sized employers were told self-funding was “only for the big guys.” That is no longer true. With the right stop-loss protection and a clear strategy, companies with as few as 25 to 50 employees can self-fund and finally see where their healthcare dollars actually go.
How does a self-funded plan work?
Instead of one fixed premium, your costs break into a few transparent parts: a third-party administrator (TPA) to process claims, stop-loss insurance to cap your risk on large claims, and the claims fund itself. You pay for the care your team actually uses. In a good year, you keep what you do not spend. In a tough year, stop-loss coverage protects you from catastrophic exposure.
Who is it a good fit for?
Employers who want transparency, control, and the ability to design a plan around their people, not a one-size-fits-all carrier product. If you have watched your renewal go up double digits every year with no explanation, self-funding is worth a serious look.
Is it risky?
Every strategy has tradeoffs. The risk of a high-claims year is real, which is exactly why stop-loss insurance exists: it sets a ceiling on what you can owe. The bigger risk for most companies is staying fully insured by default and never asking where the money goes.
Why employers make the switch
When you move from fully insured to self-funded, you stop subsidizing an insurer’s margin and gain visibility into your real cost drivers. Many employers who make the move report meaningful, often double-digit savings, not from cutting their people’s benefits, but from cutting the waste they could never see before.
Most employers do not have a healthcare cost problem. They have a healthcare visibility problem. Once you can see where the money goes, you can finally do something about it.
Paul H. Flowers Jr.
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