Self-funding break-even, risk tolerance and cash flow.
Three numbers decide whether self-funding works for you: the point where it costs the same as insurance, the most you could owe in a bad year, and how you would pay claims in a month that runs high. We build all three before you commit.
The three numbers.
Break-Even
The level of claims at which self-funding costs the same as your fully insured renewal. Below it you save, above it you spend more.
Maximum Exposure
The most you could pay in the year: expected claims, stop-loss premium and fees, plus the risk you keep under the attachment points.
Monthly Cash Flow
Claims are paid as they occur, so a month can run well above the monthly average. You need a way to fund the swing.
Expected Claims Are a Mean
They describe an average year. Actual results can land above or below, and the width of that range is the risk.
Stop-Loss Narrows the Range
Specific and aggregate coverage cap the outcomes. Each step of added protection costs premium.
Reserves Smooth the Ride
Holding some money aside lets you absorb a high month without drawing on operating cash.
From expected claims to a decision.
The same method applies at any size. The inputs differ.
Expected Claims
Built from your claims history, census, trend and plan design, adjusted for large claims and credibility.
Fixed Costs
Stop-loss premium, administration, network access, pharmacy and consulting fees, entered line by line.
Break-Even Claims
The claims level where total self-funded cost equals the fully insured alternative.
The Bad-Year Case
Total cost if claims reach the aggregate ceiling and specific claims hit their deductibles.
Monthly Funding Pattern
The expected claims by month, with a stress month that runs well above the average, to size the cash buffer.
Risk Appetite Check
We ask whether the bad-year case is acceptable to ownership and finance before pricing anything else.
How to use the numbers.
Set a Funding Rule
Decide how claims will be funded each month, and how much to hold in reserve, before the plan starts.
Revisit Quarterly
We compare actual claims to expected each quarter and adjust funding, reserves and strategy.
Use the Calculators
Our self-funded versus fully insured calculator and PMPM calculator let you test your own figures.
Three questions to settle.
Where Is Break-Even?
Ask for the claims level, in dollars, at which self-funding stops saving money.
What Is Our Bad-Year Cost?
Get a single number for the worst case under the stop-loss you choose.
How Would We Fund a High Month?
Name the source: reserve, line of credit or operating cash, and who authorizes it.
Common Questions About Risk and Cash Flow
Is break-even a single number?
It is a range that moves with fixed costs and the fully insured alternative. We show it as a number tied to specific assumptions.
How much cash do we need on hand?
It depends on claims volatility and the stop-loss design. We size it from your own monthly pattern.
Do we need a separate bank account?
Many employers use a dedicated claims account for control and clarity. The administrator’s funding method also matters.
What if claims run low?
Unspent claims money stays with the plan sponsor, subject to the contract. In level-funded plans a refund may apply.
Can we lower the risk later?
Yes. Raising the stop-loss protection or moving to a more insured structure at renewal reduces risk, at a cost.
Can you model this for us?
Yes. We build the expected-cost, break-even and bad-year figures against your renewal.
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. § 1104 — Fiduciary duty of prudence applies to decisions about plan funding.
29 U.S.C. § 1144(b)(2) — Self-funded plan status under ERISA.
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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