Self-Funded Group Health Insurance Plans

What Are Self-Funded Group Health Insurance Plans?

Self-funded group health plans, or self-insured plans, are an alternative to traditional fully-insured health insurance. These plans offer employers greater control and flexibility by allowing them to fund healthcare claims directly rather than paying fixed premiums to an insurance carrier. 

In a self-funded group health plan, the employer assumes the financial risk of providing healthcare benefits to employees. Instead of paying premiums to an insurance carrier, the employer sets aside funds to cover medical claims as they arise. Self-funded plans often involve partnerships with third-party administrators (TPAs) to manage claims processing, compliance, and network access.

Most self-funded plans include stop-loss insurance, which mitigates the risk of high claims by capping the total financial liability. This protects the employer from catastrophic expenses.

Benefits of Self-Funded Group Health Insurance Plans

For those who are interested in self-funded health plans, these are some of the major benefits:

• Cash Flow Benefits: Employers retain funds that would otherwise go to fixed premiums, allowing for potential investment or operational use.
• Claims Transparency: Access to detailed claims data enables employers to identify cost drivers and implement targeted wellness programs.
• Cost Control: Employers only pay for actual claims incurred, avoiding insurance carrier profit margins and fixed premiums.
• Flexibility: Plans can be customized to meet the specific needs of the workforce, offering greater autonomy over benefit design.
• Regulatory Uniformity: Governed by the ERISA (Employee Retirement Income Security Act), self-funded plans face consistent regulations across states, benefiting multi-state employers.
• Tax Savings: Self-funded plans are exempt from state insurance premium taxes, reducing overall costs.

What to Consider When Choosing a Self-Funded Group Health Insurance Plan

It’s also important to weigh the disadvantages of having self-funded health insurance: 

• Administrative Complexity: Managing a self-funded plan requires expertise in claims processing, compliance, and provider negotiations — many employers partner with a TPA.
• Cash Flow Variability: Employers bear the financial responsibility for claims and high claims periods can strain cash flow, particularly for smaller organizations.
• Regulatory Compliance: Employers must adhere to federal regulations under ERISA and the Affordable Care Act (ACA), including reporting and fiduciary responsibilities.
• Stop-Loss Limitations: While stop-loss insurance mitigates risk, it adds to the overall cost and may not cover every scenario.

For Whom Are Self-Funded Group Health Insurance Plans Best Suited?

Self-funded plans are best suited for:

• Cost-Conscious Organizations: Employers looking to reduce overall healthcare costs and maintain control over benefits design.
• Large Employers: Companies with a large, stable workforce can better manage the financial risks of self-funding.
• Mid-Sized Employers: With the help of stop-loss insurance and TPAs, mid-sized organizations can also benefit from self-funding.
• Multi-State Employers: Companies operating in multiple states benefit from the regulatory consistency of ERISA.

When to Enroll in a Self-Funded Group Health Insurance Plan

When employers enroll in health insurance is dependent upon a few factors, but it is usually one of the following:

• Fiscal Year Enrollment Period: This enrollment season is tied to the company’s fiscal year, which could differ from a calendar year. During fiscal year enrollment, employers could enroll in coverage whenever it aligns with the end of their fiscal year.
• Main Open Enrollment Period: For most companies with a fiscal year that aligns with the calendar year, the enrollment season is the main one in October and November. For most states, OEP begins November 1st and runs through December or January 15th.