A self-funded health plan is a plan where an employer assumes responsibility for paying the medical claims of its employees.
A self-funded health plan is different from a fully-insured plan, where the employer pays premiums to an insurance company, and the insurance company pays all medical claims. A fully-insured plan limits an employer’s cost to the premiums paid.
If medical claims are less than the premiums that would otherwise have been paid to an insurance company, then a self-funded health plan can save an employer money compared to a fully-insured plan. However, medical expenses cannot always be predicted with certainty. What happens if claims are more than expected? That is where aggregate stop-loss insurance comes in.