Self-Funded vs Fully-Insured: 2022 Trends

The self-funded vs. fully-insured question is getting more attention in 2022. Rising costs, pandemic uncertainty, and desire for transparency are pushing more employers to evaluate their funding strategy. Here's what we're seeing.

The Current Landscape

Self-funding has traditionally been the domain of large employers—1,000+ employees with the scale to absorb claim volatility. But the threshold is dropping:

• Traditional: 500+ employees for self-funding
• Current: 100+ employees actively considering
• Emerging: 50+ employees via level-funding

The products and risk management tools have evolved to make self-funding accessible to smaller employers.

Why Employers Are Looking

Transparency: Fully-insured employers often feel they're operating in the dark. Self-funding provides visibility into actual claims and cost drivers.

Control: Self-funded employers can customize plan designs, choose their own vendors, and make changes without carrier approval.

Cash flow: Rather than paying fixed premiums, self-funded employers pay claims as they occur. In good months, that's a cash flow advantage.

Escaping rate increases: Fully-insured renewals can feel arbitrary. Self-funded employers see their actual experience rather than a carrier's rate-making decision.

The Risk Question

The obvious concern with self-funding is risk. What if claims are worse than expected?

Stop-loss insurance is the answer. Specific stop-loss protects against individual catastrophic claims. Aggregate stop-loss protects against overall claims exceeding expectations.

The question becomes: is the stop-loss coverage sufficient and affordable?

What the Data Shows

In our dataset, self-funded employers show:

• More aggressive plan designs (higher deductibles, more HDHP adoption)
• Higher employer contributions on average
• More creative approaches to cost management
• Greater benefit from transparency

Self-funding isn't right for everyone, but employers who make the switch generally don't go back.

The Level-Funding Bridge

For employers unsure about full self-funding, level-funding offers a middle ground:

• Fixed monthly payments (like fully-insured)
• Claims paid from employer's account (self-funded structure)
• Stop-loss built in
• Surplus returned if claims are favorable

Level-funding has grown significantly as a bridge product for mid-size employers.

Making the Decision

The right funding strategy depends on:

• Employer size and financial stability
• Risk tolerance
• Administrative capability
• Desire for control vs. simplicity

Benchmarking helps by showing how similar employers have approached the question and what their results have been.