Self Funding Explained

A self funded health plan, also known as a self insured health plan, is a type of health insurance in which an employer assumes the financial risk for providing health coverage to its employees, rather than purchasing a traditional insurance policy from an insurance company. In a self-funded plan, the employer sets aside money to cover its employees' expected health care costs, and pays for their medical expenses directly.

One of the main advantages of a self funded health plan is that it allows the employer to have more control over the design and cost of their employee health coverage. Because the employer is directly paying for their employees' medical expenses, they have the ability to tailor the plan to fit the specific needs of their workforce and negotiate directly with healthcare providers to get the best rates. This can potentially result in lower premiums for employees, as the employer is able to avoid the overhead and profit margins of insurance companies.

Another advantage of self funded health plans is that they are generally exempt from state insurance regulations, which means that the employer has more flexibility in designing their plan and can potentially offer a wider range of benefits. Additionally, self funded plans are not subject to state premium taxes, which can further reduce the cost of coverage for the employer and its employees.

However, self funded health plans also come with a number of potential drawbacks and risks. One of the main risks is that the employer is taking on the financial responsibility for their employees' medical expenses, which means that they are vulnerable to unexpected costs if the actual medical claims exceed their projections. To mitigate this risk, many self funded employers choose to purchase stop-loss insurance, which provides coverage in the event that the medical claims exceed a certain threshold.

Another potential issue with self funded health plans is that they are not subject to the same consumer protections as traditional insurance policies. For example, self funded plans are not required to cover certain essential health benefits or to follow the same rules regarding pre-existing condition exclusions and maximum out-of-pocket limits. This can make it more difficult for employees to predict their potential costs and to get the coverage they need.

Overall, self funded health plans can be a good option for employers looking to have more control over their employee health coverage and willing to take on the financial responsibility of providing that coverage. Employers considering a self funded plan should carefully assess their ability to manage the financial risks and ensure that they have the necessary resources and support in place to manage the plan effectively.