In a nutshell, self funding is the practice of assuming the financial risk of your medical plan. Via a Third Party Administrator, (TPA), the employer pays their own medical claims. The administrator can be either a standalone company, or an insurance company. Two types of Stop Loss coverage are utilized to protect the employer from high dollar financial exposure. (See ‘How Does it Work’).
Sound scary? Well, if it is managed properly, it really is not. It simply requires a fair deal of diligence and the right partners to be successful. It also requires a mindset in which the ups and downs of financial exposure can be tolerated, recognizing that in the long run the odds are very high that you will end up paying less than if you were on a fully insured platform.
In the past, self insurance was typically only utilized by corporations with hundreds or thousands of employees. This was the case for many reasons. Today, we are seeing a significant market shift in that employers with as few as even 150 participating benefit eligible employees are strongly considering self insurance as an option when consider how to provide a cost effective medical plan to their employees.