A self-funded, also called a self-insured, plan works the same as a fully insured plan except that for self-funded plans, the financial responsibility for paying all healthcare claims will be bore, either partially or fully, by the employer instead of the insurance carrier.
An employer may choose to self-fund a plan to:
The employer must have the funds to pay all claims incurred by the group of employees. This concept can be risky because the employer's finances could take a huge hit if a catastrophic claim or more claims than expected are presented for payment. Claim volume could change every month making it difficult to predict what could be paid out. To limit the potential loss, an employer could purchase Stop Loss and/or Reinsurance Coverage. Stop Loss coverage reimburses the employer if a particular claim goes over a certain dollar amount and Reinsurance Coverage reimburses the employer when all claims for the group go over a certain amount.
Since most employers do not have the facilities to process claims on site, they may enter into an arrangement with an organization to administer the policy as written. This organization will handle the customer service, collect premiums, issue ID cards, provide benefit and eligibility information and process claims. However, the employer is the final decision maker. This arrangement is called Administrative Services Only (ASO) and this type of arrangement is usually handled by a Third Party Administrator (TPA). The employer is responsible for paying the costs to administer the plan.
So why is it important to know who is at risk for claims?
In most cases, the fact that a plan is fully or self-funded is invisible to plan members and does not matter at all, unless of course when something is not processed as expected. The appeal process is where you will need to know if you are dealing with a fully or self-funded plan. Self-funded plans are regulated by ERISA, the Employee Retirement Income Security Act. ERISA plans require uniformity. This means that the employer has a special responsibility to protect all covered employee’s interests.
ERISA plans fall under the protection of the US Department of Labor. Their state's Department of Insurance will not be able to assist with complaints from members that are covered under a self-funded plan.
For claims that were not paid as expected and an appeal is needed, you would need to:
If not satisfied with the decision, you can appeal to the US Department of Labor.