Self-insured Plan

A self-insured plan (also called self-funded) is an employer health plan where the employer pays for employee health claims directly out of its own funds, rather than purchasing a traditional insurance policy from a carrier. The employer assumes the financial risk for providing health benefits.

Many large employers, and some mid-sized ones, self-insure. It's more common than most people realize: over 60% of workers with employer-sponsored coverage are in self-insured plans. You may not even know your plan is self-insured; it often looks and feels like traditional insurance because the employer typically hires a third-party administrator (TPA) or insurance company to handle claims processing, provider networks, and member services.

Self-insured plans are regulated under federal law (ERISA) rather than state insurance law. This is an important distinction because it means they're exempt from many state-level insurance mandates, benefit requirements, and consumer protections that apply to fully insured plans. However, federal requirements, like the ACA's essential health benefit standards for small group plans, mental health parity, and preventive care mandates, still apply.

For employees, the practical differences are often minimal. You still have a network, deductibles, copays, and coverage for essential services. The main situations where self-insured status matters are if you have a complaint or appeal (it goes through a different regulatory process) or if you're comparing your employer plan's benefits to what's available on the Marketplace.

Employers choose self-insurance primarily for cost control and flexibility. They can customize plan design, avoid state premium taxes, and keep any savings when claims are lower than expected. They also purchase stop-loss insurance to protect against catastrophically expensive individual claims.