Self-insured health plan

Definition

In a self-insured (or self-funded) health plan, the employer assumes the risk of paying claims directly rather than purchasing insurance from a carrier. The employer typically contracts with a third-party administrator (TPA) for claims processing and purchases stop-loss insurance to cap exposure on catastrophic claims.

Self-insurance is typically more economical for employers with 100+ employees and stable demographics — the employer captures the carrier's profit margin. Below that size, the variance in claims year-to-year usually makes fully-insured plans safer.

PEO master plans are typically fully-insured (because the PEO pools many small clients into a stable risk pool that fits the insurance model). Self-insurance becomes more relevant if/when a business moves out of a PEO at larger scale.

Common questions about Self-insured health plan

Related terms

• Group health insurance — Health insurance purchased by an employer to cover its employees, typically at lower per-employee cost than individual policies.
• Stop-loss insurance — Insurance that caps an employer's claim exposure on a self-insured health plan — specific (per claim) and aggregate (annual total).

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