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How do self-funded health plans work?
The self-insured plan sponsor directly pays for claims as they occur. This is often done through a designated fund for healthcare costs. Most plan sponsors will incorporate stop loss insurance to protect themselves from large claims and work with a third-party administrator (TPA) or insurance company to handle claims administration. They also determine all components of the health plan such as the plan design (employee cost share, plan network, network pricing) and what benefits are covered. Sponsors may also choose to incorporate additional components and services including pharmacy benefit management (PBM), employee wellness programs, benefits dashboards, and other programs to make their self-funded plan their own and provide added benefits.

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.