Healthcare is expensive, and the costs keep climbing. Employers are feeling the pressure and looking for better ways to offer meaningful benefits without overspending. For many, this means rethinking how they pay for care.
More companies are choosing to self-fund their health plans. Nearly 70% of workers with employer-sponsored coverage are now enrolled in a self-funded plan, up from 65% just a few years ago.¹ This shift gives employers more control and, in many cases, better value.
Understanding self-funded health insurance
At its core, self-funded health insurance means the employer pays for employee healthcare claims directly instead of paying fixed premiums to an insurance company. The plan still offers coverage, but the employer takes on the financial risk and manages how the plan is run.
An employer who chooses to self-fund typically sets aside funds to cover claims, uses a third-party administrator (TPA) to process payments, and often adds stop-loss insurance to protect against high-cost claims.
This approach gives employers more visibility into how healthcare dollars are spent and helps avoid hidden carrier fees or administrative markups.
Why it’s gaining momentum
The biggest driver is cost savings. When managed well, self-funded plans can reduce total healthcare spending by 8% to 10%. That’s largely due to:
- Avoiding state premium taxes, saving about 2% to 3%
- Skipping carrier profit margins and admin fees, saving another 3% to 8%
On top of the savings, employers gain more flexibility to design benefits around what their workforce actually needs.
Large companies have been using this model for years, but small and mid-sized employers are catching up. Since 2010, the number of small employers offering at least one self-funded plan has increased from 13% to 16%, while mid-sized employers saw growth from 27% to 32%.
Moving from fully insured to self-funded
For employers considering a move from fully insured to self-funded, the shift can be significant, but it also opens the door to more control and long-term savings. Making the transition requires planning, a trusted TPA or advisor, and a clear understanding of your organization's risk tolerance and cash flow.
This isn’t a one-size-fits-all decision, but with the right support, many companies find the move beneficial.
How to set up a self-funded health plan
If you’re exploring how to set up a self-funded health plan, start by assessing your organization’s size, budget, and claims history. From there:
- Work with a benefits advisor or broker experienced in self-funding.
- Your broker will work to help you:
- Select a TPA to handle claims processing and plan administration.
- Decide between funding options such as pay as you go or level funding, which works like traditional insurance where the employer pays a fixed, bundled premium but allows the employer to benefit if claims are less than expected and even consider captive health plans that aggregate employers who self-insure in a risk sharing model.
- Put stop-loss coverage in place to protect against large claims.
- Use data and reporting tools to track performance and adjust over time.
These steps help create a stable foundation and minimize surprises down the road.
Managing risk with stop-loss coverage
One of the biggest concerns with self-funding is unpredictability. Since up to 80% of costs are variable, claims can vary from year to year. That’s where stop-loss insurance plays a key role.
It can protect your organization from unexpected high-cost claims by capping your financial liability. Today, about 87% of self-funded employers have at least one stop-loss policy in place, typically arranged through a TPA or broker.
Is it the right fit for your company?
Self-funding isn’t the right move for everyone, but for many employers, it offers more control, better insights, and the chance to stretch benefit dollars further.
If you're considering this model, ask:
- Do we have—or can we get—the right administrative support?
- Can we manage variable costs from year to year?
- Do we have access to the data needed to make informed decisions?
How Marsh McLennan Agency can help
Self-funding may not be a new concept, but its adoption is on the rise as employers seek smarter ways to manage costs and customize their health benefits. Download our Self-Funding 101 guide to learn more about the benefits and risks of self-funding.
If you’re interested in exploring more flexible benefit options, get in touch with a Marsh McLennan Agency consultant.
Download our 2025 EH&B Trends report for additional insights.
Source: 1. McKinsey. 2024 EBLF CEBE Roundtable. McKinsey, 2024.
