What does the term "self-funded health plan" mean in insurance?

The term "self-funded health plan" refers specifically to a health insurance arrangement in which the employer takes on the financial responsibility for providing healthcare benefits directly to its employees. This means that the employer uses its own funds to pay for employee medical claims rather than purchasing a fully insured health plan from an insurance company. The employer assumes all the risks associated with the costs of health care, which can include unpredictable expenses related to medical treatments and services.

This approach allows the employer greater control over the healthcare plan design and cost structure. Additionally, self-funded plans can also offer potential cost savings since the employer is not paying premiums to an insurance carrier and can potentially avoid certain taxes and fees associated with traditional insurance products.

In contrast, other types of plans, such as those primarily funded by employee contributions or managed by third-party providers, transfer financial risk and responsibility to different parties rather than the employer directly. Understanding this distinction is crucial for grasping how self-funded plans operate within the broader context of employee benefits and insurance.