What is Self-Funding?
Self-funding (also called self-insurance) is a method where employers pay for their employees' healthcare expenses directly instead of paying fixed premiums to an insurance carrier. Rather than pre-funding benefits through traditional insurance, the employer retains plan funds and pays claims as they occur.
In a self-funded plan, the employer assumes partial financial risk for employee health benefits. However, stop-loss insurance limits this risk by covering claims above specified thresholds, providing financial protection against catastrophic costs.
💡 Key Concept
With self-funding, you only pay for the actual claims your employees incur, plus administrative fees and stop-loss premiums. If claims are low, you keep the savings. With traditional insurance, the carrier keeps any unused premiums as profit.