Self-Funded Health Insurance: What It Is and When to Consider It

Self-funded health insurance is quickly becoming a go-to option for business owners tired of watching premiums climb with no end in sight. 

If you’ve ever opened your company’s renewal notice and felt that familiar churn in your gut, you’re not alone. Rising health insurance costs are one of the biggest pain points for employers – and too often, it feels like there’s no way around them. 

But self-funded health insurance offers something different. It’s not just about lowering costs – it’s about building a plan that actually fits your team and your business. 

Self-funded health insurance gives you control. And, as you build out your broader risk management and benefits programs, it allows you to tie benefits into long-term cost strategies. That’s not to say there’s no risk with self-funded plans – there certainly is – but if the situation is right, you can get tremendous value out of self funding.   

Here’s what you need to know.

Interested in learning more? Check out our webinar replay! In it, we cover the pros and cons, common misconceptions, and long-term benefits of self-funded employee health benefits, offering a practical guide for small to mid-sized employers.

Self-Funded Health Insurance vs. Fully Insured Plans: How It Works  

When it comes to offering group health insurance, most business owners start with what’s familiar: fully insured plans. They’re easy to set up, and on the surface, they seem like the safe play. And when you’re small – think, less than 7 or 8 employees – these plans can work well.  

With a fully insured plan, you pay a fixed premium to the insurance carrier for each employee. The carrier handles claims and takes on the financial risk. For many businesses, that predictability feels like peace of mind. 

But here’s the catch: you’re often paying for coverage your team doesn’t even use. If your employees are healthy and claims are low, the insurance company keeps the savings – not you. And when premiums rise (as they almost always do), you’re stuck with the bill or forced to pass the cost onto your team. 

That’s where self-funded health insurance flips the script. 

Instead of handing over a large premium every month, you only pay for care when your team actually uses it. You still work with a third-party administrator (TPA) to process claims and manage networks, and you add stop-loss insurance to protect against big, unexpected costs. 

You’re not alone in the process – but you are gaining more control.  

Learn other ways we can help you manage your businesses health insurance costs. 

Why More Employers are Making the Switch 

One of the biggest advantages of self-funded health insurance? Improved cash flow. 

Keeping funds in your business and using them as needed helps you avoid overpaying for unused coverage. That liquidity can be reinvested into your team, operations or long-term strategy.  

But savings are just the beginning. When you make the switch to self-funding, you also gain: 

• A plan tailored to your team. Want to offer robust mental health support? Incentivize preventive care? Customize benefits by role, location, or department? With self-funding, you’re in control – and your plan can finally reflect what your people actually need. 
• A recruiting and retention edge. In today’s job market, competitive benefits can make or break your hiring strategy. Self-funded plans give you the flexibility to stand out without being boxed in by one-size-fits-all coverage. 
• Actionable, real-time data. Go beyond generic trends. Self-funding gives you access to anonymized claims data that reveals how your team uses their benefits – and where there’s room to improve care and cut costs. 
• A long-term benefits strategy. Self-funding isn’t about patching problems. It’s about giving you the flexibility to build a model that evolves with your business, supports your people and scales as you grow.  

When Does Self-Funded Health Insurance Make Sense? 

While self-funded health insurance is a great option, it’s not for everyone – and that’s okay. It is worth exploring if:  

• You have 50 or more employees (or are rapidly starting to approach that number).  
• You want more say in how benefits are designed and delivered.  
• You’re frustrated by rising premiums and lack of transparency.  
• You’re looking for a solution that grows with your business.  

Bonus: If you’re not quite ready for full self-funding, level-funded plans offer a hybrid model. These have become increasingly popular with small and mid-sized employers because they offer predictability with some of the flexibility of self-funding. 

Understanding the Risks of Self-Funding 

Like anything in business, self-funding isn’t risk-free. 

Sure, a year with low claims can bring big savings – but without smart planning, one high-cost claim can throw your budget off track. Self-funded plans also come with more moving parts. Without the right support, the administrative side can quickly start to feel overwhelming. 

The good news? You don’t have to figure it out on your own. You can stay ahead of the risks while maximizing the reward by making sure to have:  

• Stop-Loss Insurance: This coverage kicks in when claims exceed a certain threshold, shielding your company from major financial shocks. 
• Smart Plan Design: Benefits like preventative care, prescription coverage and access to specialists can guide employees toward better healthcare decisions – and better cost control. 
• Employee Education: When your team understands their benefits, they use them wisely. That leads to lower costs and better outcomes. 
• Risk Advisor Support: A strategic advisor can model worst-case scenarios, monitor funding levels and ensure your plan aligns with your bigger business goals.

How Self-Funded Health Insurance Fits Into a Holistic Risk Strategy 

Here’s the part most brokers won’t tell you: Your benefits plan doesn’t live in a vacuum. 

At Ellerbrock-Norris, we look at employee benefits as one piece of your larger risk puzzle. That’s why your self-funded health insurance strategy should align with areas like: 

• Compliance requirements (think: ACA, ERISA, HIPAA) 
• Key personnel and succession planning 
• Business continuity and growth strategies 
• Long-term retirement and exit planning 

A well-run self-funded plan doesn’t just save you money – it protects your purpose. It becomes a lever for growth, culture and valuation. 

Ready to Take Back Control? 

We get it. Shifting from a fully insured model can feel overwhelming. But you don’t have to go it alone. 

Whether you’re just starting to explore self-funded health insurance, or you’re ready to take your current plan to the next level, we’re here to help you evaluate the risks, model the options and build a benefits strategy that works for you – today and in the long run. 

Think it’s time to make a change? Let’s talk.