Self-Funded vs. Fully Insured
Employee benefits plans can be broken out into two structures: the traditional fully insured plan or the self-funded plan. In a fully insured plan, a group purchases insurance by paying a premium to an insurance carrier. The carrier then covers all claims incurred by the plan members. In a self-insured (also known as self-funded) plan, employers pay for the claims themselves. They usually work with a third-party administrator (TPA) to process claims and often incorporate stop loss insurance to protect themselves from large claims. They may also add additional services to promote employee well-being, manage pharmacy benefits, or otherwise improve upon the components of their benefits plan. Another option not covered here is a level-funded plan. Read our blog post on level-funded pros and cons to understand this self-funded plan design that feels similar to a fully insured plan for many plan sponsors.
Level-Funded Pros and Cons
Level-funded plans have been rising in popularity in the past few years. According to The Kaiser Family Foundation’s 2021 Employer Health Benefits Survey, the percentage of small firms that report having a level-funded plan has been steadily increasing since 2019.
Level-funded plans are attractive to many employer groups because they strike a balance between the risky but rewarding self-insured plan and the steady but pricey fully-insured health plan.