Is self-funding right for an employer your size?
Self-funding can lower cost and give you your own claims data, but it moves claims risk onto your balance sheet. Here is how we decide whether it fits an employer, and how we protect the ones it does fit.
What changes when you self-fund.
You Pay Claims, Not a Premium
Under a fully insured plan the carrier takes the claims risk for a fixed premium. When you self-fund, the plan pays claims as they occur and you buy stop-loss insurance to cap the worst outcomes.
You Keep What Goes Unspent
Money that is not spent on claims stays with the plan sponsor instead of becoming carrier margin. In a bad year the opposite is true, which is why the decision is about volatility and not just average cost.
You Get Your Own Data
A self-funded plan owns its claims experience. That visibility lets us find the real cost drivers, test the pharmacy contract and run the plan on facts instead of carrier summaries.
State Mandates Mostly Fall Away
Federal law generally keeps state insurance mandates from reaching a self-funded ERISA plan. Federal requirements still apply, and some market rules, such as small group rating, apply only to insured plans.
Fiduciary Duties Stay With You
ERISA fiduciary responsibility applies to the plan sponsor and anyone with discretion over the plan, whether it is insured or self-funded. Self-funding adds decisions to document, such as administrator selection and claims oversight.
Cost Is Not Guaranteed
There is no fixed rate to budget against. A responsible self-funded budget is a range with a stop-loss ceiling, and your leadership should be comfortable with the top of that range.
Five questions that decide it.
We do not recommend self-funding to every employer. These are the questions we ask before we price anything.
Can You Absorb a Bad Year?
Look at the gap between the expected claims budget and the stop-loss ceiling. If paying that gap in a single year would strain the business, you are not ready, or you need a lower attachment point.
Is Your Group Stable?
Steady headcount and consistent participation make claims predictable. Rapid growth, seasonal swings and heavy turnover widen the range of outcomes.
Is There Enough History?
Underwriters price from claims experience, and so should you. A year or more of paid claims and a large-claimant list lets us tell a good risk from a hopeful one.
Do You Want a Hands-On Plan?
The savings come from managing the plan: pharmacy, large claims and vendor performance. If you want to set the plan and forget it, a fully insured plan usually fits better.
Is Cash Flow Predictable?
Claims are paid as they come, and the first months of a new plan can run light or heavy. Know how you would fund a month that lands well over budget.
How Healthy Is the Group?
Healthier groups can benefit from self-funding because the carrier risk charge goes unspent. A group with high-cost claims may still fit, but the stop-loss quote will tell you quickly.
How we test it before you commit.
Price It Against Your Renewal
We build expected claims, administration, stop-loss premium and fees, then place them beside your fully insured renewal so the comparison covers the same set of costs.
Stress Test the Downside
We model a bad year, including the claims that reach the stop-loss attachment point, so you see the worst case in dollars before you decide.
Start With the Lowest-Risk Structure
Many employers begin with a level-funded plan or a low attachment point, then take on more risk as they build reserves and comfort.
Three questions to settle.
What Is Our Maximum Exposure?
Add the expected claims, the stop-loss premium and fees, and the amount the stop-loss leaves with you. That total should be a number you can write a check for.
What Happens If We Leave?
Ask about run-out claims and terminal liability so a decision to change course does not leave you with unpaid claims.
Who Is on Our Side of the Table?
Compare how your advisor is paid and who holds the vendors accountable. We place and manage the arrangement and the vendors behind it. We do not process claims ourselves.
Common Questions About Self-Funding
Is there a minimum company size?
There is no federal minimum. Fit depends on stop-loss availability, group stability and your tolerance for variance. Smaller groups often use level-funded structures, which package the same ideas with a lower ceiling.
Does self-funding avoid the ACA?
No. Self-funded plans must follow federal rules such as the ban on lifetime and annual dollar limits. Rules that apply only to insured plans include small group community rating and the essential health benefits package.
Who pays when claims exceed our budget?
The plan pays claims up to the stop-loss attachment points, and stop-loss insurance reimburses the plan above them. Claims inside the attachment points are your cost.
Can we go back to fully insured?
Usually, at a renewal. A carrier may underwrite the group again, and claims from the self-funded period still have to be paid. Plan the exit before you enter.
Does self-funding make us the plan administrator?
The employer sponsor is typically the plan administrator under ERISA whether or not the plan is insured. A third-party administrator can run claims, but hiring one does not transfer your duty to select and monitor it.
Do you recommend it for every employer?
No. For some employers a fully insured plan is the right answer, and we will say so.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
Laws and rules referenced
29 U.S.C. § 1002(16) — Defines the plan administrator and plan sponsor under ERISA.
29 U.S.C. § 1104 — Fiduciary duties of those who manage an ERISA plan.
29 U.S.C. § 1144(b)(2) — State laws that regulate insurance and the self-funded plan exception.
42 U.S.C. § 300gg — Fair health insurance premium rules for insured small group coverage.
42 U.S.C. § 300gg-11 — No lifetime or annual dollar limits on essential health benefits.
This page is general information, not legal, tax or actuarial advice. Rules change and facts matter, so confirm your situation with counsel or a qualified advisor.
An independent employee benefits consulting firm. We look at the entire benefits program: cost, plan performance, risk and administration.
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