What if you could cut your company’s healthcare costs by 30-50% while giving employees better coverage? For the past decade, savvy employers have been doing exactly that through self-funded health plans—and you can too.
When people hear the term “self-funded health plan,” it can sound like employers are on the hook to pay medical bills directly—but that’s not how it works. Healthcare costs can be astronomical, and no employer wants to assume unlimited financial responsibility. Instead, a self-funded plan is a structured, employer-sponsored health plan that blends predictability, protection, and cost savings.
📊 Find Out If Self-Funding Is Right for Your Company
How Self-Funded Health Plans Work
In a self-funded plan, the employer and employees contribute money that covers:
- Plan Administration – Managed by a Third-Party Administrator (TPA)
- Stop-Loss Insurance (Reinsurance) – Caps employer liability if claims exceed projections
- Network Access Fees – Paid to access large national provider networks (Aetna, Blue Cross, Cigna, UnitedHealthcare, etc.)
- Pharmacy Benefits – Managed through a Pharmacy Benefit Manager (PBM) for cost-effective drug coverage
Far from being “unprotected,” a self-funded plan is a self-contained system where the employer maintains control while being shielded from catastrophic risk.
The Role of Stop-Loss Insurance in Self-Funded Plans
Stop-loss insurance makes self-funding practical and safe. It comes in two main forms:
Specific Stop-Loss – Protects against large claims from any one individual.
Aggregate Stop-Loss – Protects if overall group claims exceed a set annual limit.
Together, these protections ensure that an employer’s maximum liability is predictable.
What Does a Third-Party Administrator (TPA) Do?
A Third-Party Administrator (TPA) manages the day-to-day operations of a self-funded health plan, acting as the backbone of administration. Key responsibilities include:
- Claims Processing & Payments – Handling medical and pharmacy claims, generating Explanations of Benefits (EOBs) for members, and issuing payments to providers
- Eligibility & Enrollment – Managing new hires, terminations, and dependent eligibility
- Member and Employer Portals – Providing online access for employees to view benefits, claims, and ID cards, while offering employers reporting and compliance tools
- Customer Service – Serving as the first line of support for employees with questions about benefits, claims, or provider access
- Stop-Loss and Network Coordination – Interfacing with stop-loss carriers and national PPO networks, as well as issuing ID cards that reflect plan details
By managing these functions, the TPA allows employers to remain hands-free while still maintaining flexibility, transparency, and compliance—ensuring the plan runs smoothly and significantly reducing the administrative burden on the employer.
How Pharmacy Benefit Managers (PBMs) Control Drug Costs
A Pharmacy Benefit Manager (PBM) administers the prescription drug portion of the plan. The PBM:
- Negotiates pricing with manufacturers and pharmacies
- Offers mail-order and specialty pharmacy solutions
- Provides cost transparency and utilization controls
This is vital because pharmacy costs now account for 20–30% of total healthcare spend.
Understanding ERISA Compliance for Self-Funded Plans
Self-funded insurance plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), which establishes minimum standards for employer-sponsored health plans.
Federal Preemption – ERISA preempts most state insurance regulations, meaning self-funded plans are generally exempt from state-mandated benefits and premium taxes. This gives employers greater flexibility in designing benefits, but also places them under federal oversight.
Employer Fiduciary Duties – Employers must manage plan assets prudently and always act in the best interests of participants.
Transparency & Reporting – ERISA requires detailed disclosures, including Form 5500 filings, which report financial data, compliance, and plan operations.
ACA Integration – While ERISA governs the structure, the Affordable Care Act (ACA) imposes additional requirements, such as prohibiting lifetime coverage limits and ensuring coverage for preventive care and certain essential health benefits.
In short, ERISA gives employers freedom from state mandates but holds them to strict federal standards of fiduciary responsibility, reporting, and participant protections.
Key Benefits of Self-Funded Health Plans
Cost Savings – Avoids fully insured carrier profit loads; captures surplus when claims are lower.
Transparency – Employers see real claims data and understand where dollars are spent.
Customization – Employers design benefits that meet the unique needs of their workforce.
Cash Flow Control – Pay claims as they occur rather than pre-paying high fixed premiums.
Managing Risks in Self-Funded Health Plans
Claims Volatility – Addressed through stop-loss coverage.
Administration – Outsourced to experienced TPAs.
Compliance – TPAs and ERISA experts ensure adherence to federal requirements.
With the right partners, risks are controlled, and savings potential is preserved.
📊 Explore Self-Funded PPO Plan Options
See how you can access trusted networks from Aetna, BCBS, Cigna, and UnitedHealthcare while saving 20-40% on healthcare costs. Learn about PPO, RBP, and level-funding options.
Self-Funded vs. Level-Funded Health Plans: What’s the Difference?
While both self-funded and level-funded health plans move away from traditional fully insured models, they differ in how claims are funded and how risk is managed.
Comparison Table
| Feature | Self-Funded Plans | Level-Funded Plans | Fully Insured Plans |
|---|---|---|---|
| Monthly Cost | Variable (pay claims as incurred) | Fixed monthly payment | Fixed premium |
| Claims Funding | Employer pays actual claims | Pre-funded based on projections | Insurer covers all claims |
| Budget Predictability | Lower (month-to-month variation) | Higher (fixed payments) | Highest (guaranteed rates) |
| Surplus/Refunds | 100% returned to employer | Partial refund possible at renewal | Never refunded |
| Stop-Loss Protection | Yes (customizable) | Yes (included in monthly cost) | Not applicable |
| Claims Data Access | Full transparency | Full transparency | Limited or none |
| Best For | Groups comfortable with cash flow variation, seeking maximum savings | Groups wanting self-funding benefits with budget predictability | Risk-averse employers, very small groups |
| Typical Savings | 30-50% vs. fully insured | 20-35% vs. fully insured | Baseline (0%) |
| State Regulation | Exempt (ERISA-governed) | Exempt (ERISA-governed) | Subject to state mandates |
| Minimum Group Size | Typically 25+ employees | Typically 10+ employees | Any size |
Key Difference
Self-funded = employer pays claims directly as they occur.
Level-funded = employer pays a fixed monthly amount for greater budget predictability.
Premium Arrangement
Regardless of the model, the total plan cost (often referred to as the “premium” in level-funded arrangements or the total funding requirement in self-funded arrangements) encompasses all components of the health plan, including:
- Claims funding (actual or projected)
- Stop-loss insurance premiums
- Administrative and TPA fees
- Network access fees
- Pharmacy benefit management fees
The distinction is in how claims are funded—as incurred vs. fixed monthly—but in both models, employers are financing the same core elements.
Employer and Employee Contributions
In both models, the cost of the plan is typically shared between the employer and employees. Contributions are based on the plan’s maximum expected liability, which includes projected claims and fixed costs. This ensures the plan is funded for a worst-case year, while allowing surplus funds to be returned or credited when claims run lower than expected.
Real-World Self-Funding Success Story
A 75-employee construction firm moved from fully insured to self-funded.
- Fully insured annual premiums: $900,000
- Self-funded fixed costs + claims: $625,000
- Surplus returned to employer: $75,000
- Net savings in year one: 38%
🎯 See Your Company’s Custom Savings Projection
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Why Choose Memberly for Self-Funded Health Plans
At Memberly, we specialize in helping employers, associations, unions, and franchise systems transition to self-funding. We:
- Analyze claims history and risk profiles
- Design stop-loss and plan funding strategies
- Integrate pharmacy, telehealth, and network solutions
- Provide ongoing benchmarking and savings analysis
Our programs are built on trusted PPO networks like Aetna, UnitedHealthcare, Cigna, and Blue Cross Blue Shield, giving employees broad access while keeping employer costs predictable.
Is Self-Funding Right for Your Company?
Self-funding is not a one-size-fits-all solution. For physically active, lower-utilization industries, it can unlock 30–50% savings. For other groups, savings of 25–35% are common when factors like average age, claims experience, and location are taken into account.
With the right design and stop-loss protection, self-funding gives employers control, flexibility, and a direct return on their investment in healthcare.
Frequently Asked Questions About Self-Funded Health Plans
What is the minimum company size for self-funding?
Most self-funded health plans work best for companies with 25+ employees, though some TPAs and stop-loss carriers will work with groups as small as 10-15 employees. The key factors are claims predictability and the ability to absorb month-to-month cash flow variations.
How does stop-loss insurance protect my company?
Stop-loss insurance provides two layers of protection: specific stop-loss covers individual high-cost claims (typically when an employee’s claims exceed $50,000-$100,000), and aggregate stop-loss protects your company if total claims exceed 110-125% of expected costs for the year.
Can employees use their current doctors with a self-funded plan?
Yes. Self-funded plans typically use the same national PPO networks (Aetna, UnitedHealthcare, Cigna, Blue Cross Blue Shield) as fully insured plans. Your employees will have access to the same broad network of providers, and their ID cards will look virtually identical.
What happens to unused claim funds at year-end?
Unlike fully insured plans where carriers keep all surplus, self-funded employers retain 100% of unused claims reserves. If your employees have a healthy year with lower-than-expected claims, that money stays with your company—not an insurance carrier.
How quickly can we implement a self-funded plan?
Most companies can transition to self-funding in 60-90 days. The process includes claims analysis, plan design, stop-loss procurement, TPA selection, and employee communication. Memberly handles all coordination to ensure a smooth transition.
What if our claims are higher than expected?
This is where stop-loss insurance is critical. If claims exceed projections, your aggregate stop-loss coverage kicks in to cover costs above your maximum liability. Your risk is capped and predictable, just like with fully insured plans.
Do we need to hire additional staff to manage a self-funded plan?
No. Your Third-Party Administrator (TPA) handles all day-to-day operations including claims processing, customer service, eligibility management, and compliance reporting. Your HR team’s involvement remains minimal—similar to managing a fully insured plan.
How does self-funding comply with the Affordable Care Act (ACA)?
Self-funded plans must comply with ACA requirements including coverage for preventive care, elimination of lifetime limits, coverage for pre-existing conditions, and essential health benefits. Your TPA and benefits consultant ensure full compliance with all federal regulations.
Ready to Take Control of Your Healthcare Costs?
Curious if your group is a good fit for self-funding? Request a complimentary feasibility consultation and discover your savings potential.
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Contact Memberly Today:
Dom Maggiore
Memberly, Inc.
📞 (631) 905-6555
✉️ dom.maggiore@memberlybenefits.com
🌐 www.memberlybenefits.com
