Health plans

Self-Funded Employer Health Plans: Benefits, Pitfalls and Strategies

The majority of Americans receive their health coverage through some type of employer-sponsored insurance, and there are two main types of plans: fully insured and self-funded. Fully insured plans offer health insurance in a more conventional sense, where an employer and its employees pay monthly premiums to an insurer, who then bears the cost of medical care provided by its network of professionals.

On the other hand, employers can also choose to set up a self-funded scheme in which traditional insurance companies simply provide access to their network of providers and provide administrative services related to claims arbitration. In the case of self-funded plans, the employer acts as an insurer for the medical costs of its employees, paying these costs directly from a specific fund. The main advantage of self-funded plans is that they avoid the mark-up that insurance companies put into their premiums to generate a profit. In a typical year, this will allow employers who run a self-funded plan to save money by not paying excess premiums to insurance companies. However, since medical expenses do not accumulate with the uniformity or consistency of other professional expenses, self-funded plans exhibit much greater variability than premium-based coverage plans.