Why Self-Funded Health Plans Are the Smart Move for Cost-Conscious Employers

Healthcare costs are climbing faster than ever. For 2025, employers face an expected 8.5% increase in health benefit costs. Average annual premiums for family coverage now exceed $24,000. If you manage employee benefits, you already know the pressure these numbers create.

Here is the reality: 63% of insured U.S. workers are now covered by self-funded health plans. These employers have discovered what fully insured plans often obscure: you can take control of your healthcare spending and save significant money in the process.

What Makes Self-Funding Different

In a fully insured arrangement, you pay fixed premiums to an insurance carrier. The carrier assumes the risk and keeps the profit. You get limited visibility into where your money goes and almost no control over plan design.

Self-funded plans flip this model. Your organization assumes the financial responsibility for healthcare benefits directly. You pay claims as they occur rather than fixed monthly premiums. You gain full access to claims data. And you can customize your plan to fit your workforce.

The advantages are clear:

• Financial transparency: You see exactly where every dollar goes.
• Plan flexibility: Design benefits that match your employees' actual needs.
• Regulatory efficiency: Federal ERISA preemption means you avoid state-by-state insurance mandates.
• Tax savings: Self-funded plans are exempt from state premium taxes (typically 2-4%).

The Real Numbers on Savings

Organizations that transition to self-funding can save an average of $2,760 per employee annually. For a company with 1,000 employees, that translates to potential net annual savings of $3 million after accounting for stop-loss premiums and administrative costs.

Where do these savings come from?

• Elimination of insurance company margins: You stop paying for carrier profits and overhead built into fully insured premiums.
• Direct PBM negotiation: Specialty drugs represent 40-50% of pharmacy spend. Self-funded plans can negotiate directly with pharmacy benefit managers.
• Targeted interventions: With full claims data, you can identify high-cost drivers and implement specific programs to address them.

Some mid-sized organizations report a 20-40% reduction in annual health plan spend after just one year of technology deployment on top of the systemic savings from the transition itself.

Managing the Risk

The most common concern about self-funding is risk. What happens if you have a catastrophic claim year?

Stop-loss insurance solves this problem. Two types protect your organization:

• Specific stop-loss protects against high-cost individual claims. If any single employee has claims exceeding a set threshold, the stop-loss carrier covers the excess.
• Aggregate stop-loss protects against your total plan costs exceeding projections. This is typically set at 125% of expected annual claims.

With proper stop-loss coverage in place, your maximum exposure is known and capped. You get the benefits of self-funding with predictable risk parameters.

The Implementation Timeline

A successful transition to self-funding takes approximately 15 weeks and follows six phases:

1. Planning and assessment (4 weeks): Analyze 24-36 months of claims data, assess employee demographics, evaluate current plan performance.
2. Legal and compliance (2-3 weeks): Develop ERISA plan documents, establish HIPAA compliance framework, verify CAA and No Surprises Act requirements.
3. Vendor selection (3-4 weeks): Choose your TPA or ASO provider, stop-loss carrier, and PBM.
4. Plan design and financial structuring (2-3 weeks): Finalize benefits, set stop-loss attachment points, establish claims reserves.
5. Implementation (2-3 weeks): System integration, employee communication, enrollment.
6. Go-live and monitoring (ongoing): Launch the plan and establish performance monitoring systems.

Is Self-Funding Right for You?

Self-funding works best for organizations that have stable employee populations, sufficient cash flow to manage claims timing, and leadership willing to take a more active role in benefits management.

Before making the decision, conduct a comprehensive feasibility analysis. Review your claims history. Assess your risk tolerance. Engage professional expertise in legal, actuarial, and benefits consulting to guide the process.

The 63% of U.S. workers already covered by self-funded plans represent employers who made this calculation and found the answer favorable. With proper planning and risk management, your organization can join them.

Download the accompanying white paper here.