The decision between self-funded and fully-insured health plans isn't just about company size. While most brokers default to "you need 100+ employees to self-fund," the reality is more nuanced. The right funding strategy depends on your claims history, risk tolerance, cash flow, and long-term cost control objectives.
Understanding the Fundamental Difference
Fully-Insured Plans: You pay a fixed premium to an insurance carrier. The carrier assumes all risk and pays all claims. You have predictable costs but zero transparency into actual claim expenses or carrier profit margins.
Self-Funded Plans: Your company pays actual claims as they occur, plus administrative fees. You assume the risk but gain complete transparency and control. Stop-loss insurance protects against catastrophic claims.
The Size Myth: It's Not Just About Employee Count
Traditional wisdom says you need 100+ employees to self-fund. But we've successfully implemented self-funded strategies for employers with as few as 40 employees when the conditions are right:
- Relatively young, healthy employee population
- Strong cash flow to handle claim fluctuations
- Willingness to engage in active benefits management
- Access to level-funded options that reduce risk exposure
When Self-Funding Makes Sense
Ideal Self-Funding Candidates:
- Stable Claims History: Your fully-insured premiums have been increasing 8-15% annually despite stable claims
- Desire for Transparency: You want to see exactly where your healthcare dollars go
- Cash Flow Capacity: You can handle monthly claim fluctuations without financial stress
- Control Objectives: You want to implement wellness programs, pharmacy strategies, and utilization management
Self-funded employers typically save 10-25% compared to fully-insured premiums in the first year. But the real value comes from long-term cost control—you're no longer subsidizing the carrier's profit margin, risk pools, or administrative bloat.
When Fully-Insured Still Makes Sense
Stick with Fully-Insured If:
- High-Risk Population: Multiple chronic conditions or recent large claims make stop-loss coverage prohibitively expensive
- Cash Flow Constraints: Monthly claim fluctuations would create financial stress
- Small Group Size: Under 25 employees with no level-funded options available
- Predictability Priority: You value fixed costs over potential savings
The Level-Funded Middle Ground
Level-funded plans offer a hybrid approach that's ideal for employers who want self-funding benefits without full risk exposure. You pay a fixed monthly amount (like fully-insured), but the plan operates as self-funded with stop-loss protection.
At year-end, if claims come in lower than projected, you receive a refund. If claims exceed projections, stop-loss insurance covers the difference. This structure provides:
- Predictable monthly costs (like fully-insured)
- Transparency into actual claims (like self-funded)
- Potential for year-end refunds when claims are favorable
- Protection against catastrophic claim years
Real Example:
A 65-employee manufacturing company switched from fully-insured ($720,000 annual premium) to level-funded. Their fixed monthly cost was $58,000. Actual claims came in at $580,000. They received a $62,000 refund at year-end—an effective 8.6% savings with zero additional risk.
The Plan Design Audit Approach
Most brokers present self-funded vs fully-insured as a binary choice made at renewal. A Plan Design Audit examines your specific situation—claims history, employee demographics, cash flow, risk tolerance—to determine which funding strategy aligns with your objectives.
We model both scenarios with actual numbers, showing projected costs, potential savings, and risk exposure under each approach. This allows you to make an informed decision based on data, not broker preferences or carrier incentives.
Should You Consider Self-Funding?
Request a free Plan Design Audit to see side-by-side comparisons of fully-insured, level-funded, and self-funded options for your specific situation.
Request Your Free Audit