What distinguishes a self-funded (self-insured) plan from a fully insured plan?

In a self-funded (self-insured) plan, the employer takes on the financial risk for providing health benefits to its employees. This means that instead of paying a fixed premium to an insurance company for coverage, the employer directly funds the cost of claims as they arise. This approach allows employers greater control over their health benefits and can lead to potential cost savings, particularly if claims are lower than anticipated.

In self-funded plans, employers may also choose to purchase stop-loss insurance to protect against unexpectedly high claims, but the primary responsibility for paying claims lies with the employer. This contrasts with fully insured plans, where the insurance company assumes the financial risk and is responsible for paying all claims in exchange for a premium. Understanding this distinction is crucial for evaluating different health plan options in the context of financial management and employee benefits.