In a self-funded plan, the employer assumes direct financial responsibility for paying employee health claims rather than paying fixed premiums to an insurance carrier. The employer funds claims as they occur, typically through a dedicated claims account, and purchases stop-loss insurance to cap exposure on large individual claims and in aggregate. A third-party administrator (TPA) or carrier handles claims processing and network access. The employer keeps any surplus when claims run below projections — unlike a fully-insured plan where the carrier keeps that difference.

Self-funding has traditionally been associated with large employers (500+), but the market has evolved significantly. Many employers with 100 or more employees are viable self-funding candidates, and level-funded plans — a structured variation of self-funding — can work for groups as small as 25–50 lives. The right threshold depends on claims history, workforce demographics, risk tolerance, and cash flow capacity. We run a readiness analysis for every employer we evaluate — there’s no one-size answer.

Stop-loss insurance protects a self-funded employer from catastrophic claims exposure. Specific stop-loss covers individual claims above a set threshold — for example, once a single employee’s claims exceed $75,000 in a plan year, the stop-loss carrier pays the excess. Aggregate stop-loss caps the employer’s total claims liability across the entire group, typically set at 125% of expected claims. Technically stop-loss is not legally required, but virtually every self-funded employer below a certain size purchases both layers. Running self-funded without stop-loss is a meaningful financial risk most employers aren’t positioned to take.

A third-party administrator (TPA) handles the day-to-day administration of your self-funded plan — claims processing, provider network access, utilization management, member services, and regulatory filings. Most self-funded employers use either a standalone TPA or a carrier acting in an ASO (administrative services only) capacity. The TPA does not bear insurance risk; they process and adjudicate claims on your behalf. Choosing the right TPA is one of the most consequential decisions in a self-funding transition — network quality, reporting capabilities, and service levels vary significantly across the market.

The primary advantages are cost transparency, plan flexibility, cash flow, and claims data ownership. Self-funded employers see every dollar of claims spend and what’s driving it — fully-insured employers typically receive only summary data. Self-funded plans are exempt from state insurance mandates and premium taxes, which can meaningfully reduce cost. Plan design is fully customizable — benefit levels, networks, formularies, and wellness incentives can all be tailored to your workforce. And when claims run favorably, the employer keeps the difference rather than the carrier.

The primary risk is claims volatility — in a bad claims year, costs can exceed projections even with stop-loss in place, since stop-loss deductibles and corridors mean the employer still bears a defined layer of risk. Cash flow planning is more complex than writing a fixed premium check each month. ERISA compliance, plan document obligations, and nondiscrimination rules require ongoing attention. Self-funding also places greater administrative responsibility on the employer and their broker. These risks are manageable with proper stop-loss structuring, a capable TPA, and an experienced advisor — but they’re real and worth understanding before transitioning.

Generally no — self-funded ERISA plans are exempt from state insurance regulation, including state benefit mandates and premium taxes. This is one of the structural cost advantages of self-funding, particularly in states with broad mandated benefit requirements. The plan is governed by ERISA at the federal level rather than state insurance law. There are exceptions — certain state laws apply to self-funded plans (some state surprise billing protections, mental health parity requirements, and reporting obligations), and non-ERISA plans (government employers, church plans) operate under different rules. We review the applicable regulatory landscape as part of every self-funding evaluation.

Level-funded is a structured form of self-funding designed for smaller employers. In a level-funded plan, the employer pays a fixed monthly amount — covering expected claims, stop-loss premiums, and administrative fees — which eliminates the cash flow variability of traditional self-funding. At year end, if claims came in below the funded amount, the employer receives a refund of the surplus. Level-funded plans offer most of the data transparency and savings potential of self-funding with the payment predictability of a fully-insured plan. They’re generally appropriate for groups of 10–200 lives where traditional self-funding may carry too much volatility.

Most transitions happen at the annual plan renewal date and take 90 to 120 days from initial analysis through implementation. The timeline includes readiness assessment, stop-loss marketing and carrier selection, TPA selection, plan document drafting, network contracting confirmation, open enrollment, and employee communication. Rushing the transition — particularly the stop-loss and TPA selection — is a common mistake that leads to poor outcomes. We build a transition timeline at the start of every engagement and manage the process from first analysis through go-live.