Question 1

How do I calculate whether self-funding makes financial sense for my company?

Accepted Answer

The self-funding financial analysis compares your current fully insured premium against projected self-funded costs: expected claims (typically 80–85% of premium), TPA fees ($15–$40 PEPM), stop-loss premium (10–15% of expected claims), and other vendor costs. If your claims experience is better than average, self-funding typically saves 10–20%. Use the calculator to model your specific situation with your actual premium and employee count.

Question 2

What is the break-even employee count for self-funding?

Accepted Answer

Most benefits consultants recommend self-funding for employers with 100 or more employees, though some employers with 50–100 employees self-fund successfully with strong stop-loss protection. Below 50 employees, claims volatility is too high for most employers to absorb. Level-funded plans offer a hybrid option for employers with 25–100 employees that want some self-funding benefits with more predictable costs.

Question 3

What financial reserves does a self-funded employer need?

Accepted Answer

Self-funded employers should maintain a claims reserve equal to 2–3 months of expected claims to cover timing differences between when claims are incurred and when they are paid. For a 200-employee employer with $2 million in annual claims, that means $333,000–$500,000 in reserves. Stop-loss insurance limits catastrophic exposure, but the employer still needs working capital to pay claims before stop-loss reimbursement.

Question 4

How does self-funding affect cash flow compared to fully insured?

Accepted Answer

Fully insured plans require fixed monthly premium payments regardless of actual claims. Self-funded plans pay claims as they are incurred, which creates variable monthly costs but improves cash flow in months with low claims. Self-funded employers also benefit from holding claim reserves and earning investment income on those funds, rather than prepaying premiums to a carrier.

Question 5

What is level funding and how does it differ from traditional self-funding?

Accepted Answer

Level funding is a hybrid arrangement where the employer pays a fixed monthly amount (like a premium) that covers expected claims, stop-loss, and administration. At year-end, if actual claims are lower than expected, the employer receives a refund of the surplus. If claims exceed the funded amount, stop-loss covers the excess. Level funding provides the cost predictability of fully insured with some of the savings potential of self-funding.

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