What is Self Funded Group Health Insurance
Jason Stolz CLTC, CRPC
Self-funded group health insurance allows employers to pay employee medical claims directly instead of buying a traditional fully insured policy. By taking on this role, companies can customize benefits, control claim costs, and keep any unused funds—while still protecting against large claims through stop-loss insurance.
At Diversified Insurance Brokers, we help employers transition from rigid fully insured plans to self-funded or level-funded health plans that balance control with stability. This model is increasingly popular for small and mid-sized businesses seeking flexibility, transparency, and long-term savings.
Explore Self-Funded Group Health Options
Compare self-funded, level-funded, and fully insured group plans to identify the best fit for your company’s budget and goals.
How Self-Funded Group Health Insurance Works
In a self-funded plan, the employer acts as the insurer. Instead of paying fixed premiums to a carrier, the company sets aside funds each month to pay employee medical claims directly. Third-party administrators (TPAs) handle claims processing, network access, and compliance tasks, while a stop-loss policy protects the employer from catastrophic claims.
- Employer control: You decide plan design, deductibles, and copay structures.
- Claims transparency: You see exactly where every dollar goes.
- Cost efficiency: Pay only for actual claims rather than inflated premiums.
- Flexibility: Customize benefits for your workforce and adjust annually.
This approach works especially well for employers with stable claims and fewer than 250 employees who want to align benefits with company culture and healthcare goals.
The Role of Stop-Loss Insurance
Because self-funded employers take on claims risk, stop-loss insurance is essential protection. It reimburses the employer when claims exceed certain thresholds. There are two types:
- Specific Stop-Loss: Protects against unusually large claims from a single member.
- Aggregate Stop-Loss: Caps the total amount the employer pays for all claims combined.
Our advisors evaluate both coverage types to ensure your plan is structured correctly and that attachment points match your group’s size and risk tolerance. You can learn more in our overview of stop-loss insurance in level-funded plans.
Self-Funded vs. Level-Funded vs. Fully Insured Plans
| Feature | Self-Funded | Level-Funded | Fully Insured |
|---|---|---|---|
| Plan Ownership | Employer | Employer (fixed monthly cost) | Insurance carrier |
| Claims Risk | Employer bears, limited by stop-loss | Carrier and employer share | Carrier only |
| Regulation | ERISA, DOL, COBRA | ERISA + carrier participation | State insurance laws |
| Plan Flexibility | High — design and vendor choice | Moderate | Low — pre-set carrier plan |
Key Advantages of Self-Funded Group Health Plans
- Cash flow retention: Premiums aren’t pre-paid to a carrier—unused funds remain with your company.
- Data access: See detailed claim reports for better long-term planning.
- Tax efficiency: Self-funded claims are not subject to state premium taxes, often saving 2–3% annually. Review group health tax benefits for details.
- Customizable benefits: Integrate dental and vision coverage or telehealth programs.
Who Is a Good Fit for Self-Funding?
Self-funding is ideal for employers that:
- Have 25 or more covered employees and consistent claims patterns
- Want flexibility to design benefits around employee needs
- Seek cost transparency and control over renewals
- Maintain stable cash reserves to fund monthly claims
Smaller employers can still enjoy many of these advantages through level-funded group health plans, which blend predictability with self-funded benefits.
Get a Self-Funded Group Health Quote
Find out how your company can reduce costs, customize benefits, and keep unused funds instead of paying them to a carrier.
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FAQs: Self-Funded Group Health Insurance
Is self-funded group health insurance legal for small businesses?
Yes. Self-funding is permitted under ERISA and can work for groups as small as 10 employees when paired with stop-loss insurance or level funding.
What happens if claims exceed expectations?
Stop-loss coverage reimburses the employer for claims above specific or aggregate limits, protecting cash flow.
Do self-funded plans still use provider networks?
Yes. Most use national PPO or reference-based pricing networks administered by a TPA.
Are self-funded plans subject to state mandates?
No. They are governed by federal ERISA rules, not state insurance laws, which gives greater design flexibility.
What’s the difference between level-funded and self-funded?
Level-funded plans blend fixed monthly payments with self-funded advantages, ideal for smaller employers seeking predictable budgeting.
