View source for Definition:Employer self-funded plan

💰 '''Employer self-funded plan''' is an arrangement in which an employer assumes the financial risk of providing [[Definition:Health insurance | health]] or other benefit coverage to its employees directly, rather than purchasing a fully insured [[Definition:Group insurance | group policy]] from an [[Definition:Insurance carrier | insurance carrier]]. Under this structure, the employer pays [[Definition:Insurance claim | claims]] out of its own assets — often through a dedicated trust or general funds — and typically hires a [[Definition:Third-party administrator (TPA) | third-party administrator (TPA)]] to handle claims processing, [[Definition:Provider network | network]] access, and regulatory reporting. Self-funded plans are regulated primarily under the federal [[Definition:Employee Retirement Income Security Act (ERISA) | ERISA]] framework, which preempts most state insurance mandates and gives employers greater flexibility in plan design.

⚙️ To guard against catastrophic claims, virtually all self-funded employers purchase [[Definition:Stop-loss insurance | stop-loss insurance]], which caps exposure at two levels: [[Definition:Specific stop-loss | specific stop-loss]] limits the employer's liability for any single claimant, while [[Definition:Aggregate stop-loss | aggregate stop-loss]] caps total plan-year claims. The interplay between the employer's retention level and the stop-loss attachment point is a key [[Definition:Underwriting | underwriting]] variable, and [[Definition:Actuary | actuaries]] model expected claims using the employer's historical data, demographic profile, and trend assumptions. [[Definition:Managing general underwriter (MGU) | MGUs]] and specialized [[Definition:Employee benefits broker | benefits brokers]] play an active role in structuring these programs, particularly for mid-size employers migrating from fully insured arrangements.

📈 Self-funding has grown steadily — the majority of covered workers at large U.S. employers now fall under self-funded plans — because it offers cost transparency, cash-flow advantages, and freedom from state [[Definition:Premium tax | premium taxes]] and certain benefit mandates. For the insurance industry, this shift reshapes the competitive landscape: carriers that once earned [[Definition:Premium | premium]] on fully insured business now compete for [[Definition:Administrative services only (ASO) | administrative services only (ASO)]] contracts and stop-loss placements, which carry thinner margins but high volume. [[Definition:Insurtech | Insurtech]] entrants are targeting this space with data-driven stop-loss pricing and digital plan-management tools, further pressuring incumbents to modernize.

'''Related concepts:'''
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* [[Definition:Stop-loss insurance]]
* [[Definition:Third-party administrator (TPA)]]
* [[Definition:Employee Retirement Income Security Act (ERISA)]]
* [[Definition:Administrative services only (ASO)]]
* [[Definition:Group insurance]]
* [[Definition:Employer-sponsored insurance]]
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