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Self-funded health plans: roles, obligations and providers
In a self-funded health plan, the employer pays employees' covered medical claims from its own funds instead of buying a fully insured policy. Employers commonly hire a third-party administrator to run the plan and buy stop-loss insurance to limit large losses, but the plan's obligations remain the employer's.
An employer-funded health plan, usually run by a third-party administrator and backed by stop-loss insurance.
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How are these providers ranked?Who does what in a self-funded plan
Self-funded plans sponsored by private-sector employers are generally governed by federal law, chiefly ERISA, rather than state health insurance law. Stop-loss insurance bought by the employer is insurance, so states can regulate it. Government and church plans follow different rules. Each party's role should be written into its contract.
| Party | Typical role | What stays with the employer |
|---|---|---|
| Employer (plan sponsor) | Funds claims, sets plan terms, oversees the plan | Benefit obligations and fiduciary duties |
| Third-party administrator | Processes claims and eligibility, arranges network access, produces reporting | Responsibility for the plan and for monitoring the TPA |
| Stop-loss carrier | Reimburses the employer above attachment points | Paying members’ claims when they are due |
| Benefits counsel and consultants | Plan documents, compliance support, vendor selection | Final decisions |
The usual starting points are a TPA that administers your type of plan, a close read of stop-loss attachment points and exclusions, and benefits counsel to prepare or check the plan documents.
Benefits and limitations
Potential benefits
- The employer pays actual claims, administration and any stop-loss premium, rather than a fully insured premium that includes the carrier's margin and risk charge.
- Direct access to the plan's own claims data.
- More room to design benefits, networks and programs, within the federal rules that apply to the plan.
- Better-than-expected claims years benefit the employer.
Key considerations and limitations
- The employer carries claims volatility; stop-loss limits it but reimburses the employer, not plan members.
- For private-sector plans, plan-sponsor and fiduciary duties under ERISA, and applicable federal reporting and coverage rules, stay with the employer.
- Cash flow is less predictable than a fixed monthly premium.
- Results in small groups can be dominated by a few large claims.
Is this relevant to me?
When it may be worth exploring
- Your workforce is large enough for claims experience to be a credible signal.
- You want plan-design flexibility and your own claims data.
- You will resource administration, compliance and plan governance properly.
When it may not fit
- A handful of large claims would dominate a year's results.
- Budget certainty matters more than potential savings.
- There is no appetite for plan administration and compliance responsibility.
Providers for Self-Funded Health Plan
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Not sure where to start?
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