Self-Insured Plan

What Is a Self-Insured Plan?

A self-insured plan, also known as a self-funded plan, is a type of health insurance where an employer assumes the financial risk for providing healthcare benefits to its employees. Instead of paying premiums to an insurance company, the employer sets aside funds to cover medical claims directly.

How Self-Insured Plans Operate

Under a self-insured arrangement, the employer typically partners with a third-party administrator (TPA) to manage claims processing and network contracts. While the employer takes on the financial burden, they often purchase stop-loss insurance to protect against catastrophic claims that exceed a predetermined limit.

These plans provide greater flexibility, allowing employers to design benefits tailored to their workforce’s needs. For instance, an employer might include wellness programs, telehealth options, or specific coverage that aligns with their employees’ demographics or industry risks.

Advantages and Considerations

Self-insured plans offer cost savings in the absence of premiums and allow employers to retain unspent funds rather than losing them to an insurer. However, they also carry financial risks, particularly for smaller organizations without diverse pools to spread out costs.

Larger corporations like Amazon and Walmart often adopt self-insured plans to maintain control over benefits and costs. This model exemplifies how employers can use a self-insured structure to provide comprehensive care while managing financial exposure effectively.