The Difference Between Fully Insured and Self-Funded Health Plans
Colton Storla, CPBS, GBDS
Employee Benefits Expert | More HealthCARE, less insurance | Partner, North Risk Partners | Health & Wellness Guru
Most employers are throwing money at health insurance without knowing where it goes. They write monthly checks to big carriers, watch premiums climb year after year, and have zero clue whether they're getting ripped off or not.
But if you're buying health insurance "off the shelf" from Blue Cross, United, Cigna, or Aetna (what we call the "BUCA carriers"), you're probably overpaying. And worse, you have no way to prove it because they won't show you the data.
The difference between fully insured and self-funded health plans isn't just about how you pay for coverage—it's about who controls your healthcare spending and whether you can see what you're paying for.
What Fully Insured Means
When you're fully insured, you're buying a pre-packaged product from a big insurance company. You pay the same monthly premium for 12 months, regardless of whether your employees use $10,000 or $100,000 in medical services.
At the end of those 12 months, you get nothing back.
No data. No surplus. No insight into how your plan performed.
Just a renewal notice with another rate increase.
Think about how backwards this is. You just paid $25,000 a month for health coverage, and you have no idea if your employees used $250,000 worth of care or $350,000. The insurance company knows—they just won't tell you.
Level Funded: The Baby Step Into Self-Funding
Level funded plans are like training wheels for self-funding. You still pay monthly premiums, but at the end of the year, you get to see how your plan performed.
If your employees didn't use all the money you paid in premiums, you get a surplus check back. One client got $5,800 back—money that would have just disappeared into an insurance company's pocket under a fully insured plan.
How Level Funded Works
With level funded plans:
Level funding works well for smaller employers (5-100 employees) who want more control without the complexity of full self-funding. But if you're ready to take full control of your healthcare spending, that's where self-funded plans come in.
Self-Funded Plans: Taking Control of Your Healthcare Spending
True self-funding means you pay your own claims. Instead of sending monthly premiums to an insurance company, you set aside money to pay for your employees' medical expenses.
But here's the key: you're not taking unlimited risk. You have stop-loss insurance that kicks in if claims get too high.
The Self-Funded Structure
A properly structured self-funded plan has several components:
Third-Party Administrator (TPA): Processes claims and handles day-to-day administration. Choose an independent TPA, not one owned by a big insurance carrier.
Pharmacy Benefit Manager (PBM): Manages prescription drug benefits. Work with a transparent PBM that shows you drug costs, not one that makes money by hiding rebates.
Stop-Loss Insurance: Protects you from catastrophic claims. You'll have:
Additional Add-ons: Since every client is unique in what they are trying to accomplish with their health insurance plan, self-funding allows clients to add things like care navigation, direct primary care (DPC), centers of excellence (CEO) networks, cancer, MSK, or even transplant programs.
The Self-Funding Journey Doesn't End at Implementation
Here's what most employers don't understand: switching to self-funding isn't a one-time decision. It's an ongoing process of using your claims data to make your plan better and less expensive.
Let's say your data shows high cancer claims. You might add an oncology management program. Seeing lots of expensive MRIs? Implement bundled imaging contracts. High pharmacy costs? Switch to a fiduciary PBM that shows you drug prices.
This is why some employers say, "We tried self-funding, and it didn't work." They switched to self-funding but didn't use the data to manage their costs. They just changed their funding model with no additional strategy and wondered why nothing changed.
The ongoing management is what separates self-funding success stories from failures. But the question remains: is the extra work worth it?
For a daycare client of mine, they’ve saved over $300,000 in 3 years. That equates to multiple jobs, more resources, and additional pay raises. I’d say it’s worth it!
Control vs. Convenience
Fully insured plans are convenient. You write one check per month and don't think about it until renewal time. But that convenience costs you money and control.
Self-funded plans require more involvement, but they give you transparency, control, and the ability to keep money within your four walls instead of sending it to insurance company shareholders.
If you're tired of renewal increases with no explanation, if you want to know where your healthcare dollars go, and if you're ready to take control of your health insurance costs, it's time to have a serious conversation about self-funding.
The question isn't whether you can afford to self-fund.
The question is whether you can afford not to.
Reach out to me with any questions.
Physician and CMO at DoctorsNow
2wVery informative! Thanks for the content.
Chief Executive Officer at Global Rx Management Ltd
3wThanks Colton, that's really informative in a clear and concise way.
Captive and Self-Funded Health Plan Expert / Connector / Sports & Fitness Enthusiast
3wThanks for sharing, Colton. Good stuff.