If you have a stake in employee benefits, you know that benefit plans are changing at a very rapid pace – which can be very difficult to follow. Switching to a self-funded plan can help. You will pay only for what you need and use. With zero premium taxes and lower administrative costs, the savings can add up rather quickly.

With a self-funded healthcare plan, instead of paying monthly premiums to a commercial insurer, you are responsible for paying your employees’ healthcare claims directly. You pay the covered claims and also pay an administrative fee to a Third Party Administrator (TPA) to handle the paperwork, while you pocket the savings.

The Advantages of Self-Funding

Self-Funding has become the dominant financing method for healthcare plans for these reasons:

  • Cash flow advantages (general asset funding, e.g.).

  • Cost savings (no premium taxes, insurer risk charges, e.g.).

  • Plan control (employer is better able to control plan and its costs, e.g.).

  • Plan design flexibility (avoidance of state-mandated benefits, e.g.).

So long as employers are expected to be the primary source of financing, the dominance of self-funding in the future may be expected. Comparing a self-funded plan to an owned plan and a fully insured plan to a rented plan, one may easily grasp the simplicity of self-funding, and how it contrasts to a fully insured plan. There are disadvantages of self-funding, however, as not all people want the responsibility of plan ownership. For several reasons, the preferred term is self-funding and not self-insurance.

Experts in Self-Funding

Self-Funding Actuarial’s Carlton Harker wrote what has been considered “The Bible of Self-Funding” for over 30 years.