All group medical benefit plans fall into one of two categories: self-funded or insured. The choice of one over the other should not be made arbitrarily. Each type carries its own set of administrative rules and legal constraints.
What is Self-Funding?
Under an insured health benefit plan, an insurance company assumes the financial and legal risk of loss in exchange for a fixed premium paid to the carrier by the employer. Employers with self-funded (or self-insured) plans retain the risk of paying for their employees’ health care themselves, either from a trust or directly from corporate funds.
Most employers with more than 200 employees self-insure some or all of their employee health benefits. Many employers with fewer than 200 employees also self-fund, but these employers require greater stop-loss insurance protection than larger employers (stop-loss insurance is discussed in greater detail later). As a general rule, employers with less than 100 employees fully insure their group medical benefits.