Table of ContentsView AllTable of ContentsWhat Is Self-Insured Health Insurance?How Self-Insured Plans Are RegulatedRegulations That ApplyRegulations That Do Not ApplyThird-Party AdministrationSummary
Table of ContentsView All
View All
Table of Contents
What Is Self-Insured Health Insurance?
How Self-Insured Plans Are Regulated
Regulations That Apply
Regulations That Do Not Apply
Third-Party Administration
Summary
When employers want to offer health insurance to their workers, they essentially have two options: a self-insured plan (also known as a self-funded plan) or a fully insured plan. There are important differences to understand between the two in terms of who pays the actual claims costs.
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Fully-insured means that the employer purchases health insurance coverage from a commercial insurer and the insurance company then takes on the risk associated with the employees' health claims.
According to a 2024 Kaiser Family Foundation analysis, 63% of U.S. employees with employer-sponsored health insurance are in self-insured plans.
Most businesses with 200 or more employees are self-insured, with 79% of covered workers at these businesses enrolled in self-insured health plans. Among businesses with fewer than 200 employees, however, just 20% of covered workers are in self-insured plans (this is up from 13% in 2018, but a little lower than it was in 2020).
This makes sense, since larger businesses are generally the ones that have the financial ability to take on the risk associated with employees' medical claims. But for employers who are able to do so, self-insuring can provide financial savings as well as the option to tailor-make a health plan to suit the employer’s and employees' needs.
Insurers and TPAs that contract with self-insured businesses are increasingly offering products that make it easier for smaller businesses to self-insure. These include stop-loss (also known as reinsurance) coverage that reimburses the employer in the event of a substantial claim, and level-funded coverage packages that eliminate the claims cost volatility that a self-insured plan could otherwise face.
Fully-insured health insurance plans are mostly regulated at the state level, although there are various federal minimum standards (contained in laws such asHIPAA,COBRA, andthe ACA) that also apply.
Self-insured health insurance plans are not subject to state insurance laws and oversight. Instead, they’re regulated at the federal level under ERISA (theEmployee Retirement Income Security Act) and various provisions in other federal laws like HIPAA and the ACA.
So, for example, when a state imposes rules torequire health plans to cover vasectomiesor infertility treatment, the requirements don’t apply to self-insured plans. And nearly two-thirds of people who have employer-sponsored health insurance are covered under self-insured plans.
This can sometimes cause frustration and confusion, especially when a person is in a state where a new insurance mandate or law generates significant excitement and media coverage, and residents with self-insured plans may not be aware that the new rules don’t apply to their coverage.
This can be the case, for example, if a state starts to require state-regulated plans to cover something like infertility treatment, but then people with self-insured plans don’t get that benefit unless their employer decides to offer it.
If you work for a large company, it’s likely that your health coverage is self-insured. Your employer might have chosen to create a very robust benefits package to use as a recruitment and retention tool, and your coverage may well be more generous than it would be if the employer purchased coverage from a health insurance company.
But it’s also important to understand that state-based health insurance mandates don’t apply to self-insured plans. Depending on where you live, this might explain why your health plan isn’t covering a service that your state requires health plans to cover.
Regulations That Apply to Self-Insured Plans
There are some basic federal minimum standards that do apply to self-insured plans though. This includes things like the HIPAA rules that prohibit employer-sponsored plans from rejecting an eligible employee (or dependent) based on medical history, and the ACA rules that prohibit plans from imposing waiting periods for pre-existing conditions.
The Pregnancy Discrimination Act applies to all health plans with 15 or more employees, including self-insured plans. Along with various other nondiscrimination provisions, the law requires employer-sponsored health plans to include maternity coverage. (The law doesn’t require a small employer to offer coverage, but if they do, it must include maternity benefits.)
Self-insured plans are also subject to COBRA (assuming the group has 20 or more employees), which means eligible employees and their dependents can opt to continue their coverage if a life change event would otherwise result in a coverage termination.
The Families First Coronavirus Response Act required nearly all health plans, including self-insured plans, to waive cost-sharing for COVID-19 testing during the COVID public health emergency, meaning that the enrollee didn’t have to pay anything for the office visit or the test itself.
But the COVID public health emergency ended on May 11, 2023.So health plans are now allowed to charge cost-sharing for in-office COVID testing and no longer have tocover the cost of at-home COVID tests.
The federalNo Surprises Acttook effect in 2022, protecting consumers from most instances of “surprise"balance billing. It applies to self-insured as well as fully insured plans.
Various states had already taken action to limit surprise balance billing, but state rules only apply to fully insured plans; the new federal rule provides protection for consumers in states that hadn’t yet taken action and also protects people with self-insured coverage.
Several Affordable Care Act provisions apply to self-insured plans in the same manner that they apply to fully insured plans. This includes:
Regulations That Do Not Apply to Self-Insured Plans
As described above, state-based laws and regulations generally only apply to fully-insured plans. Self-insured plans are not subject to them, although there is sometimes an option for self-insured plans to opt into these requirements.
There are also some federal requirements that do not apply to self-insured plans. Some examples include the following:
Most self-insured employers partner with a third-party administrator (TPA) to handle claims, network negotiations, and the overall administration of the plan (pharmacy benefits managersare a type of TPA).
Because of TPAs and network agreements, enrollees in self-insured health plans might not be aware that they’re in a self-insured plan. Since enrollees' plan documents and ID cards might say something like Blue Cross, UnitedHealthcare, or Cigna, it’s natural for enrollees to thus assume that the insurer listed on their ID card is providing their coverage and taking on the potential claims risk for the group. But if the plan is self-insured, the insurance company is only acting as an administrator and is not using their own money to cover claims.
As noted above, to address the COVID-19 pandemic, the federal government enacted legislation that required nearly all health plans—including self-insured plans—to fully cover COVID-19 testing costs throughout the COVID public health emergency.
If the employer is self-insuring (which is usually the case if the employer has 200+ employees), it’s actually theemployerthat is taking on the claims risk—the insurance company listed on the ID card is just being paid to administer claims, manage the network agreements with medical providers, etc.
As described above, the employer might also be paying the insurer for stop-loss coverage that will kick in if claims reach a certain point (you can think of that as an insurance policy for the insurance policy), or for a level-funding arrangement that helps to smooth out claims costs over time.
With all the blurred lines between fully-insured and self-insured plans, it’s not surprising that even some small employers that use level-funding agreements aren’t aware that their plan is self-insured.
The rules and regulations that apply to self-insured health plans aren’t always the same as the rules and regulations that apply to fully insured health plans, and state-based insurance rules never apply to self-insured plans. Employees are often unaware of whether their health plan is fully insured or self-insured.
15 SourcesVerywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Kaiser Family Foundation.2024 Employer Health Benefits Survey.Sammer, Joanne. Society for Human Resources Management.Level-Funded Health Plans: A Steppingstone to Self-Funding. April 5, 2021.Norris, Louise. healthinsurance.org.Does health insurance cover IVF and other fertility treatments?U.S. Equal Employment Opportunity Commission.Pregnancy Discrimination & Work Situations.Schwartz, Matt. Schwartz Insurance Group.Determining COBRA Premiums for Fully Insured & Self-Funded Health Plans.U.S. Department of Labor.FAQs on COBRA Continuation Health Coverage.Congress.gov.H.R.6201 - Families First Coronavirus Response Act.U.S. Department of Health and Human Services.Fact Sheet: COVID-19 Public Health Emergency Transition Roadmap. February 9, 2023.Miller, Stephen, CEBS. SHRM.Relief From Surprise Medical Billing Becomes Law.HUB.No Surprises Act Guidance for non-ERISA Plans (and Insured Plans). February 10, 2022.Kirchhoff SM.Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act (ACA): Issues for Congress. Congressional Research Service.Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market Rating Reforms. State Specific Rating Variations.Colorado General Assembly.SB24-073, Maximum Number of Employees to Qualify as Small Employer. Enacted 2024.America’s Health Insurance Plans.Answering the call: Health insurance providers act swiftly as part of COVID-19 solution.Kaiser Family Foundation.Employer Health Benefits, 2019 Summary of Findings.Additional ReadingAffordable Care Act. A Guide for Self-Funded Plans. AmeriHealth Administrators.Moving to Self-Funded Health Plan Guide. The PHIA Group.
15 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Kaiser Family Foundation.2024 Employer Health Benefits Survey.Sammer, Joanne. Society for Human Resources Management.Level-Funded Health Plans: A Steppingstone to Self-Funding. April 5, 2021.Norris, Louise. healthinsurance.org.Does health insurance cover IVF and other fertility treatments?U.S. Equal Employment Opportunity Commission.Pregnancy Discrimination & Work Situations.Schwartz, Matt. Schwartz Insurance Group.Determining COBRA Premiums for Fully Insured & Self-Funded Health Plans.U.S. Department of Labor.FAQs on COBRA Continuation Health Coverage.Congress.gov.H.R.6201 - Families First Coronavirus Response Act.U.S. Department of Health and Human Services.Fact Sheet: COVID-19 Public Health Emergency Transition Roadmap. February 9, 2023.Miller, Stephen, CEBS. SHRM.Relief From Surprise Medical Billing Becomes Law.HUB.No Surprises Act Guidance for non-ERISA Plans (and Insured Plans). February 10, 2022.Kirchhoff SM.Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act (ACA): Issues for Congress. Congressional Research Service.Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market Rating Reforms. State Specific Rating Variations.Colorado General Assembly.SB24-073, Maximum Number of Employees to Qualify as Small Employer. Enacted 2024.America’s Health Insurance Plans.Answering the call: Health insurance providers act swiftly as part of COVID-19 solution.Kaiser Family Foundation.Employer Health Benefits, 2019 Summary of Findings.Additional ReadingAffordable Care Act. A Guide for Self-Funded Plans. AmeriHealth Administrators.Moving to Self-Funded Health Plan Guide. The PHIA Group.
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Kaiser Family Foundation.2024 Employer Health Benefits Survey.Sammer, Joanne. Society for Human Resources Management.Level-Funded Health Plans: A Steppingstone to Self-Funding. April 5, 2021.Norris, Louise. healthinsurance.org.Does health insurance cover IVF and other fertility treatments?U.S. Equal Employment Opportunity Commission.Pregnancy Discrimination & Work Situations.Schwartz, Matt. Schwartz Insurance Group.Determining COBRA Premiums for Fully Insured & Self-Funded Health Plans.U.S. Department of Labor.FAQs on COBRA Continuation Health Coverage.Congress.gov.H.R.6201 - Families First Coronavirus Response Act.U.S. Department of Health and Human Services.Fact Sheet: COVID-19 Public Health Emergency Transition Roadmap. February 9, 2023.Miller, Stephen, CEBS. SHRM.Relief From Surprise Medical Billing Becomes Law.HUB.No Surprises Act Guidance for non-ERISA Plans (and Insured Plans). February 10, 2022.Kirchhoff SM.Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act (ACA): Issues for Congress. Congressional Research Service.Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market Rating Reforms. State Specific Rating Variations.Colorado General Assembly.SB24-073, Maximum Number of Employees to Qualify as Small Employer. Enacted 2024.America’s Health Insurance Plans.Answering the call: Health insurance providers act swiftly as part of COVID-19 solution.Kaiser Family Foundation.Employer Health Benefits, 2019 Summary of Findings.
Kaiser Family Foundation.2024 Employer Health Benefits Survey.
Sammer, Joanne. Society for Human Resources Management.Level-Funded Health Plans: A Steppingstone to Self-Funding. April 5, 2021.
Norris, Louise. healthinsurance.org.Does health insurance cover IVF and other fertility treatments?
U.S. Equal Employment Opportunity Commission.Pregnancy Discrimination & Work Situations.
Schwartz, Matt. Schwartz Insurance Group.Determining COBRA Premiums for Fully Insured & Self-Funded Health Plans.
U.S. Department of Labor.FAQs on COBRA Continuation Health Coverage.
Congress.gov.H.R.6201 - Families First Coronavirus Response Act.
U.S. Department of Health and Human Services.Fact Sheet: COVID-19 Public Health Emergency Transition Roadmap. February 9, 2023.
Miller, Stephen, CEBS. SHRM.Relief From Surprise Medical Billing Becomes Law.
HUB.No Surprises Act Guidance for non-ERISA Plans (and Insured Plans). February 10, 2022.
Kirchhoff SM.Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act (ACA): Issues for Congress. Congressional Research Service.
Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market Rating Reforms. State Specific Rating Variations.
Colorado General Assembly.SB24-073, Maximum Number of Employees to Qualify as Small Employer. Enacted 2024.
America’s Health Insurance Plans.Answering the call: Health insurance providers act swiftly as part of COVID-19 solution.
Kaiser Family Foundation.Employer Health Benefits, 2019 Summary of Findings.
Affordable Care Act. A Guide for Self-Funded Plans. AmeriHealth Administrators.Moving to Self-Funded Health Plan Guide. The PHIA Group.
Affordable Care Act. A Guide for Self-Funded Plans. AmeriHealth Administrators.
Moving to Self-Funded Health Plan Guide. The PHIA Group.
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