JJ Joppru
Vice President, Employee Health & Benefits
As healthcare costs continue to rise, many business owners and executives ask themselves whether self-funding is a smart strategy or an unnecessary gamble. It sounds complex—maybe even a little bold—something often thought to be reserved for bigger employers with deeper pockets.
But as premiums keep climbing and competition for talent puts benefits under the spotlight, employers are taking a closer look at how those benefits are funded. Alternative approaches like self-funding are gaining traction—even among companies with as few as 50 employees—prompting them to evaluate which financial vehicle can sustain the benefits their workforce expects, and their balance sheet can support.
The following five questions will help determine if self-funding fits your organization’s current financial reality.
1. Do the numbers actually support it?
Self-funding should not be driven by philosophy or frustration alone. It needs to be supported by actuarial analysis. Before any recommendation is made, historical claims performance, demographic patterns, projected volatility and stop-loss protection scenarios should be modeled against fully insured premiums.
Marsh McLennan Agency’s team, which includes actuaries and underwriting specialists, performs these evaluations and uses actuarial analysis to model potential outcomes. The goal is to determine whether self‑funding is likely to be advantageous for the organization or whether remaining fully insured is the better financial decision.
If underwriting and actuarial projections show little separation between expected claims and fully insured premiums, remaining fully insured is often prudent. However, when modeling reveals a measurable spread between projected claims and carrier pricing, the conversation changes. At that point, the question becomes whether your organization is prepared to manage its own risk profile in exchange for retaining that margin.
2. Can your organization tolerate variability?
Fully insured plans offer cost predictability. Self‑funded plans introduce financial variability, even when strong stop‑loss protection is in place. Leadership should be comfortable evaluating financial projections that include best‑ and worst‑case ranges rather than guaranteed outcomes.
Organizations best positioned for self‑funding typically have stable cash flow, access to reserves and leadership alignment around long‑term risk management. They view healthcare funding across multi‑year horizons rather than reacting to each annual renewal.
3. What is driving your claims?
Understanding cost drivers is critical, particularly in pharmacy. According to the Business Group on Health’s 2025 Employer Survey, pharmacy benefits now account for 27% of total employer healthcare spend, up significantly in just the past few years, with specialty medications driving much of that growth.
Under fully insured arrangements, pharmacyrelated margins can be embedded in premiums and may lack transparency. In a selffunded structure, employers can gain more visibility into pharmacy benefit management strategies and evaluate opportunities to reduce embedded markups.
One advantage of a self‑funding evaluation is the ability to closely analyze where spending is actually occurring. Marsh McLennan Agency’s team reviews claims data in detail — particularly in high‑cost areas like pharmacy — to help identify what is driving costs and where there may be opportunities to reduce unnecessary spending or reallocate dollars more effectively.
If pharmacy is consuming a disproportionate share of spend, taking targeted actions on pharmacy management may materially affect long‑term cost performance, although outcomes depend on claims volatility and large‑loss exposure. As with every component of this decision, the numbers determine the answer.
4. Are your benefits competitive?
For many employers, the evaluation extends beyond cost control and touches culture and competitive positioning.
Fully insured plans operate within predefined carrier frameworks. Self‑funding can allow employers greater flexibility to shape plan design, contribution strategies, network configurations and pharmacy structures. That customization can help organizations differentiate their benefits in competitive labor markets.
When structured carefully, self‑funding may enable employers to redirect financial gains toward enhancing plan richness, moderating employee contributions or investing in health initiatives aligned with workforce needs.
5. Is your infrastructure prepared?
Self‑funding requires coordination between HR and finance. It does not require an expansive internal department, but it does require disciplined oversight, clear financial reporting and leadership engagement.
Employers should understand implementation timelines, cash flow dynamics, stop‑loss protection options and how network performance affects access and cost. Consider engaging finance, HR and external advisors where appropriate. Operational readiness is less about complexity and more about transparency; when leadership teams understand the mechanics, the structure becomes manageable rather than intimidating.
When staying fully insured is the right decision
Like any funding strategy, self-funding carries both advantages and tradeoffs, and it is not a universal solution.
Remaining fully insured may be the more responsible move if actuarial modeling shows minimal financial upside, if claims volatility is too high, or if leadership prefers fixed costs over controlled variability. The goal is to select the funding structure that aligns with your financial and cultural reality.
Move forward with measured confidence
Unexpected renewal increases can trigger action, but they shouldn’t dictate strategy. Funding your health plan is a structural decision that deserves disciplined financial analysis.
Contact your Marsh McLennan Agency representative to begin a feasibility study that uses actuarial analysis and stop‑loss scenarios to model potential outcomes and determine whether self‑funding may be advantageous for your organization.
