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What is a self-funded health plan?

A self-funded health plan is a health care benefit plan where an employer takes on the financial costs associated with employee claims on a per-occurrence basis rather than paying an insurance party a pre-determined premium amount. Also known as a self-insured plan, companies that choose this option will generally develop a trust fund where the money is earmarked for future claim payments. Third-party administrators, known as TPAs, are usually hired to process and pay claims on the employer’s behalf. TPAs may also be used to source PPO services, review, or audit claims, and collect premium amounts. A self-funded plan is attractive because it can be customized to the employee population and gives the employer more control over plan vendors.

Synonyms for self-funded health plans
The term Administrative Services Only (ASO) Insurance is synonymous with the definition of self-funded health plan. The two can be used interchangeably.

 


Learn more about self-funded health plans

When do I need to be aware of self-funded health plans?

Business owners looking to comply with mandated healthcare coverage for employees will have to determine whether they want a traditional premium-based plan or whether they want to have more control over their cash flow. With a self-funded health plan, claims are paid once services have been rendered, allowing companies to avoid the costs associated with policy overhead and loss of business earnings.

What is important to know about self-funded health plans?

  • The insurance coverage provided by a self-funded plan is no different from a traditional plan. It is the payment process and contract with the insurance company that differs. There are some other important items you should know about self-funded health plans: In a self-funded plan, the employing company assumes the financial risk of any health claims rather than the insurance company.
  • These plans often have a positive impact on a company’s bottom line because the plan is uniquely crafted to suit the employee population without unnecessary extras.
  • A self-funded plan allows a company to avoid paying the full state premium tax, usually leading to much lower premium costs.
  • Where the claim experience is impacted by catastrophic claims, an employer with a self-funded plan has the option of securing coverage via stop-loss insurance.