Glossary
Self-funded health plan
A group health plan where the employer pays employees' claims itself rather than paying an insurer premiums, usually backed by stop-loss insurance.
Also called: self-insured health plan, self-funded plan, self-insured plan, ASO plan, administrative services only
In a self-funded plan, the employer, not an insurer, carries the financial risk of employees' medical claims. It sets money aside to pay claims as they come in and usually hires a third-party administrator for claims processing, provider networks and reporting, an arrangement often called administrative services only. The employer avoids the insurer's risk charge and premium taxes, and keeps any claims money that goes unspent.
Risk is capped with stop-loss insurance. Specific stop-loss reimburses the claims of any one person above a set attachment point. Aggregate stop-loss reimburses when total plan claims exceed a set percentage of expected claims. Without it, one transplant or neonatal intensive care case could consume a small employer's budget.
Self-funded plans are governed by ERISA, which preempts most state insurance laws, so many state benefit mandates and premium taxes do not apply. Federal rules still do: the ACA, COBRA, HIPAA and mental health parity. The plan also files Form 5500 and carries fiduciary duties.
The pitfalls are cash flow and unreported claims. A bad month can strain finances, and when a plan ends, claims incurred but not reported still have to be paid. Self-funding historically suited larger employers; level-funded plan arrangements package it for small groups with fixed monthly payments. The guide on fully insured vs self-funded health plans: which fits your business compares the models, and stop-loss insurance for self-funded health plans: specific, aggregate and the fine print explains the protection. See third-party administrator for the vendor role.
Last reviewed October 10, 2026