In a May 2025 blog post, OneDigital examined the best way to transition from a fully insured health plan to a self-funded plan. A self-funded health care plan is one where the employer assumes the financial risk for providing health care benefits to its employees. Instead of paying fixed premiums to an insurance carrier, the employer pays for medical claims out of its own funds.

There are benefits and risks to offering a self-funded health care plan. Benefits include cost control, potential savings, and plan flexibility. Employers also gain access to claims and utilization data, allowing them to identify trends and make informed decisions about plan design. However, self-funded plans come with financial risks. Employers must be prepared to pay claims as they occur, making strong cash flow essential. In addition, employers must purchase stop-loss insurance to protect against large or catastrophic claims.

OneDigital provided the following tips for a smooth transition to operating a self-funded plan:

• Develop a detailed transition plan and timeline.
• Partner with a third-party administrator to help design and administer the plan.
• Evaluate stop-loss insurance options.
• Define plan coverage and cost-sharing policies.
• Ensure compliance with ERISA, the Affordable Care Act (ACA), and other regulations.
• Train human resources and benefits staff.
• Communicate clearly with employees to support understanding and engagement.

“For many employers, self-funded health plans provide a strategic way to manage health care costs and deliver tailored benefits,” noted OneDigital. “However, they aren't one-size-fits-all. Business owners should carefully evaluate their financial readiness, workforce needs, and long-term goals before making the switch.”

Source: OneDigital, The Employer’s Guide to Self-Funded Health Plans: Benefits, Risks, and How To Get Started, May 15, 2025