Health Insurance

Self-Funded Plan

In a self-funded plan, the employer functions as the insurer — paying claims from its own funds — while typically contracting with a TPA or insurer for administrative services.

Last reviewed: May 2026 · Editorial methodology

Definition

A self-funded (or self-insured) health plan is an arrangement in which the employer assumes direct financial responsibility for employees' medical claims, rather than purchasing a fully insured group health policy where the insurance company bears the risk. Instead of paying monthly premiums to an insurer, the employer funds a claims account from which covered medical expenses are paid. Most self-funded employers contract with a Third-Party Administrator (TPA) or an insurance carrier acting as an ASO (Administrative Services Only) provider to handle claims processing, network access, and member services. Self-funded plans are subject to ERISA and largely exempt from state insurance mandates and premium taxes, allowing employers to customize benefits and potentially reduce costs. Stop-loss insurance is almost always purchased alongside self-funding to protect against catastrophically large individual claims (specific stop-loss) or aggregate claims that far exceed projections (aggregate stop-loss). Self-funded plans are most common among large employers but have grown among mid-size businesses seeking greater cost control.

Where this term matters

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Tip

Glossary definitions are educational. Always check your own policy language — insurers can define common terms differently from one another. When in doubt, request a written explanation from your agent.

Related terms

ERISAERISA sets minimum standards for employer-sponsored health plans and generally shields self-funded plans from state insurance mandates.Fully Insured PlanIn a fully insured plan, the insurance carrier guarantees payment of covered claims in exchange for a fixed monthly premium, transferring all financial risk from the employer.COBRACOBRA continuation coverage preserves your existing group health plan after a qualifying event but requires you to pay the full premium — both employee and employer shares — plus an administrative fee.ACA (Affordable Care Act)The ACA established consumer protections including guaranteed issue, coverage of preexisting conditions, and subsidized marketplace insurance for millions of Americans.
Source: Cover Forge USA editorial team|Last verified: May 2026|Methodology
Definitions are educational and may be simplified. Always refer to your policy contract and consult a licensed agent for terms that affect coverage decisions.
CF

Cover Forge USA Editorial Team

Editorial Lead

This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.

Reviewed June 2026

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