Understanding Health Insurance: Self-funded Plans vs. Funded Plans

Self-Funded Plans

Do you get coverage through your employer? Do you know which type of plan you have? You should.

But, the truth is, most people don’t.

For most people, this is a totally foreign concept.  We are more familiar with different premiums, different levels of coverage, different insurance company names, but whether or not your plan is self-funded or funded may be a new concept.

These are two ways in which employers provide health insurance benefits for their employees:

  • Funded plan: also called fully insured, these plans are when an employer contracts with a state-regulated insurance company, and the insurance company assumes the risk of your medical expenses. So, an employer buys coverage for its employees from an insurance company.
  • Self-funded plan: also called a self-insured plan, these plans are set up by the employer to pay the medical bills of their employees directly.

Though self-funded plans are most common among large companies, smaller businesses are beginning to self-fund. The big reason for this is cost.  It is cheaper to self-fund a plan because self-funded plans and are often exempt from state-mandated benefits. This means that in most cases, the only consumer protections for the people in these plans is whatever the federal law provides.

For instance, in California and 20 other states, there are laws related to surprise medical bills. These laws protect consumers from surprise bills from out-of-network doctors like anesthesiologists or emergency room doctors. There is no federal law regarding surprise medical billing.

How do I know if my plan is self-funded?

This is a question for your HR representative or whomever administers your employee benefits.  You probably won’t be able to tell from your insurance card, because most companies that self-fund still contract with an insurance company to administer the plan (pay claims, mail out EOB’s, etc.).  So whether you in a self-funded plan or funded plan, you may still have a typical insurance card from a company (e.g., Aetna, Humana, etc.). But keep in mind, if you work for a large company, with thousands of employees, there is a strong likelihood that you are in a self-funded plan.

What do I do if I am unhappy with a coverage decision in a self-funded plan?

  1. Contact the customer service number listed on your card.
  2. If your situation is not resolved, call the Employee Benefits Security Administration (EBSA) through the Department of Labor at 866-444-3272 or contact them online.
  3. If EBSA doesn’t help in a timely manner, many states have consumer assistance programs to help you navigate insurance problems. They can assist you in filing an appeal and be an advocate. Visit http://TriageCancer.org/StateResources for information in your state.

Don’t be too concerned if you are in a self-funded plan.  Large companies want happy employees, so they often write protections right into their plans.  Just be aware, because there is a difference in which laws may or may not apply to your plan.