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💰 '''Self-funded insurance''' is an arrangement — most prevalent in employee health benefits — where an employer assumes the financial responsibility for paying its employees' [[Definition:Claims | claims]] directly rather than purchasing a fully insured [[Definition:Group insurance | group]] [[Definition:Insurance policy | policy]] from an [[Definition:Insurance carrier | insurance carrier]]. The employer sets aside funds (or pays claims as they arise) and typically contracts with a [[Definition:Third-party administrator (TPA) | third-party administrator (TPA)]] to handle [[Definition:Claims administration | claims processing]], network access, and compliance, while retaining the underlying risk on its own balance sheet.

⚙️ Under a self-funded plan, the employer pays actual claims costs plus administrative fees, rather than a fixed [[Definition:Premium | premium]] to an insurer. To protect against unexpectedly large individual claims or aggregate annual losses, most self-funded employers purchase [[Definition:Stop-loss insurance | stop-loss insurance]] — both [[Definition:Specific stop-loss | specific]] (per-claimant) and [[Definition:Aggregate stop-loss | aggregate]] (total plan) layers — from a stop-loss carrier. This hybrid structure means the employer bears predictable, attritional losses while transferring [[Definition:Catastrophic loss | catastrophic]] tail risk to the insurer. Cash flow advantages are significant: rather than prepaying a fully insured premium that includes the carrier's profit margin and risk charge, the employer pays only for the healthcare actually consumed, plus the cost of the stop-loss [[Definition:Coverage | coverage]] and TPA services.

📈 Self-funded insurance has grown steadily among mid-size and large employers, and its expansion into smaller employer groups — enabled by level-funded products and [[Definition:Insurtech | insurtech]] platforms that simplify administration — is reshaping the group health market. For carriers and [[Definition:Managing general agent (MGA) | MGAs]], this trend means that stop-loss [[Definition:Underwriting | underwriting]] has become one of the fastest-growing specialty lines, requiring sophisticated [[Definition:Actuarial analysis | actuarial modeling]] of individual high-cost claimants and medical trend. Regulators pay close attention as well: self-funded plans for private employers are governed primarily by federal ERISA law rather than state insurance regulation, creating a different compliance landscape than fully insured products. Understanding the self-funded ecosystem — from TPA selection to stop-loss attachment points — is essential for any professional operating in the health benefits space.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Stop-loss insurance]]
* [[Definition:Third-party administrator (TPA)]]
* [[Definition:Group insurance]]
* [[Definition:Level-funded plan]]
* [[Definition:Self-insurance]]
* [[Definition:Aggregate stop-loss]]
{{Div col end}}

Definition:Self-funded insurance - Revision history

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