Self-funded Insurance Plan, refers to an insurance plan which sees the organization to have an in-house fund for insurance pay-outs, rather than paying premiums to an external vendor.

This can be helpful for the organization as it reduces costs; however it also increases risk to solvency in the event of large pay-outs. Unlike other plans in which a predetermined premium payment is made, with the self funded insurance plan, employers pay for claims as they actually occur. 

The impact on the cash flow is visible as there are fewer fixed costs out of the employer’s control, and more ability to control the variable pool of claims expenses. This therefore means that employers can have more financial control. As well as having financial control, employers can have:

• Increased control over risk: Whilst fully- insured plans transfer their risks to the carrier, they miss out on the opportunity for savings, within the self - funded model, employers have the chance to purchase stop-loss insurance, in order to be protected against financial risk of overly expensive claims. Instead of transferring the risk, the employer is proactively managing it.
• Low administration costs and less regulations: Fully insured plans are usually subjected to a local regulation. The regulation may vary depending on the state, which could create a and mandate a challenging compliance environment. However, for self funded insurance plans, government intervention is quite limited to the federal level and does not require state taxes. Self funded employers,  also save themselves that hassle of paying additional costs and fees with fully insured arrangements. 
• More clinical outreach  and plan design options: self funded employers have the opportunity to create tailored health solutions, which reduce the overall claim expense. Employers can easily implement employee intervention programs, they are also able to choose providers, become part of a proprietary network and generally put their employees in a position to make smarter consumer choices.