Self-funded vs. fully insured.
How a company funds its health plan — fully insured, level-funded, self-funded, or ICHRA — decides how much risk, cost, administration, and compliance it takes on. Fully insured (often called fully funded) hands it all to a carrier for a fixed premium; self-funding takes it in-house. Here's what each model really asks of an employer.
The short answer
The difference is who bears the risk.
In a fully insured plan, the employer pays a fixed premium and the carrier takes the risk and pays claims. In a self-funded plan, the employer takes the risk, pays claims through a TPA, and buys stop-loss to cap catastrophic exposure. Level-funded sits between the two; ICHRA steps outside the model entirely, funding employees to buy their own coverage. Everything else about a plan — cost behavior, administration, compliance, and data — follows from which one you choose.
The models
Four ways to fund a health plan.
Employers aren't choosing between two options anymore. Each model puts a different amount of risk and responsibility on the company.
How it works
The employer pays a fixed premium to a carrier, which assumes the risk and pays claims.
What the employer takes on
Little beyond the premium — the carrier owns the risk, administration, and compliance. Predictable, but none of a good year's savings comes back to you.
How it works
A self-funded structure wrapped in a fixed monthly payment that bundles expected claims, administration, and stop-loss.
What the employer takes on
A first step into self-funding: more predictability than full self-funding and some claims visibility, with the risk pre-packaged. A good year can return a surplus.
How it works
The employer pays claims from its own funds, usually through a TPA, and buys stop-loss to cap catastrophic risk.
What the employer takes on
The most: claims risk, cash-flow swings, plan administration, ERISA fiduciary duty, and vendor management — in exchange for cost control, data, and design flexibility.
How it works
Instead of sponsoring a plan, the employer gives employees a tax-free monthly allowance to buy their own individual coverage.
What the employer takes on
A shift from running a plan to funding one: you control the budget and offload claims risk and administration, but take on allowance design, compliance, and employee education.
What you take on
Self-funding trades predictability for control.
Moving from fully insured to self-funded doesn't just change who pays claims — it moves a whole set of responsibilities onto the employer. Here's what shifts.
| What's at stake | Fully insured — the carrier handles it | Self-funded — you take it on |
|---|---|---|
| Claims risk | The carrier owns it; you pay a fixed premium. | You pay actual claims from company funds — costs rise and fall with utilization. |
| Cash flow | One predictable, level monthly premium. | Variable monthly claims; you fund a claims account and manage the swings. |
| Catastrophic protection | Built into the premium. | You buy and manage stop-loss — specific and aggregate — to cap exposure. |
| Plan administration | The carrier administers the plan. | You run it, usually by hiring and overseeing a TPA or ASO. |
| Compliance & fiduciary duty | Largely the carrier's; the plan is state-regulated. | Yours under ERISA: plan documents, Form 5500, nondiscrimination testing, fiduciary responsibility. |
| Vendor management | A single carrier relationship. | You assemble and manage TPA, stop-loss carrier, PBM, network, and point solutions. |
| Claims data | Limited — the carrier owns the experience. | You get your own claims and utilization data, and the work of acting on it. |
| Plan design | Choose from the carrier's packaged plans. | Design the benefit — networks, cost-sharing, carve-outs — around your population. |
| Cost upside | A good year's savings stays with the carrier. | A good claims year's surplus stays with you; a bad year costs more. |
Between and beyond
Where level-funded and ICHRA fit.
The fully-insured-vs-self-funded choice isn't binary anymore. Two models have reshaped it — one softening the leap into self-funding, the other stepping outside group coverage entirely.
Level-funded: the on-ramp
Level-funding is technically self-funding, but the employer pays a fixed monthly amount that bundles expected claims, administration, and stop-loss. At year-end the account is reconciled — a good claims year can return a surplus, while stop-loss caps the downside.
What you take on: a self-funded structure — an ERISA plan, some claims visibility, and the responsibilities that come with it — but with the risk pre-packaged and cash flow kept predictable. It's why level-funding has become the default first step for small and mid-sized employers testing self-funding.
ICHRA: fund, don't sponsor
An Individual Coverage HRA flips the model. Rather than sponsoring a group plan, the employer sets a tax-free monthly allowance and employees buy their own individual coverage. Available to employers of any size since 2020, it's a move from defined benefit to defined contribution.
What you take on: budget control and predictability, with claims risk and plan administration offloaded to the individual market — in exchange for designing the allowance, meeting ICHRA compliance rules, and educating employees who now shop for their own plans.
FAQ
Frequently asked questions
What is the difference between self-funded and fully insured?+
In a fully insured plan, the employer pays a fixed premium to an insurance carrier, and the carrier assumes the risk and pays claims. In a self-funded (self-insured) plan, the employer assumes the financial risk and pays claims from its own funds — usually with a third-party administrator handling claims and stop-loss insurance capping catastrophic exposure. The core difference is who bears the claims risk.
Does 'fully funded' mean the same thing as 'fully insured'?+
In everyday benefits conversation, yes — 'fully funded' is commonly used to mean 'fully insured,' where the employer pays fixed premiums and the carrier owns the risk. The precise industry term is 'fully insured,' contrasted with 'self-funded' (or 'self-insured').
What does a company take on when it self-funds?+
A lot more than a premium. The employer assumes the claims risk and the cash-flow swings that come with it, buys and manages stop-loss insurance, administers the plan (usually through a TPA), and takes on ERISA fiduciary and compliance duties — plan documents, Form 5500 filing, and nondiscrimination testing. It also manages a stack of vendors (TPA, PBM, network, point solutions) and becomes responsible for its own claims data. In return it gains cost control, data visibility, and design flexibility.
What is a level-funded plan?+
Level-funded is a hybrid. The employer is technically self-funded but pays a fixed monthly amount that bundles expected claims, administration, and stop-loss — giving the predictability of fully insured with the upside of self-funding, since a good claims year can return a surplus. It's how many small and mid-sized employers take their first step toward self-funding.
What is ICHRA, and how is it different?+
An Individual Coverage HRA (ICHRA) is a defined-contribution alternative to sponsoring a group plan. Instead of offering a plan, the employer gives employees a tax-free monthly allowance to buy their own individual health insurance and reimburses them. Available to employers of any size since 2020, it moves the employer from running a plan to funding one — offloading claims risk and administration to the individual market while taking on allowance budgeting, ICHRA compliance, and employee education.
Why do employers self-fund their health plans?+
To control cost and cash flow, avoid state premium taxes and mandated benefits (self-funded plans are governed by federal ERISA), gain access to their own claims data, and keep any savings from a good claims year instead of paying it to a carrier. The trade-off is more financial variability, which stop-loss insurance is designed to contain.
What is stop-loss insurance?+
Stop-loss is the coverage a self-funded employer buys to cap its risk. Specific stop-loss limits the cost of any single member's claims; aggregate stop-loss limits total plan claims for the year. It's what makes self-funding viable for employers that couldn't absorb an unlucky, high-claims year on their own.
Keep reading
Related guides
What is ICHRA?
The defined-contribution model that lets employers fund individual coverage instead of sponsoring a plan.
What is Form 5500?
The annual ERISA filing self-funded and insured plans report through each year.
Stop-loss insurance
The coverage that makes self-funding viable by capping catastrophic claims risk.
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