Historically, employers have turned to alternative means of financing risk when traditional insurance financing methods failed to meet their needs. Today, over 50 million employees receive benefits from self-insured programs. This shift in funding vehicles is largely attributable to an increased awareness by employers that by eliminating a third-party insurer, they can cut costs without reducing benefits.

A self-funded plan is one in which the employer assumes the financial risk for providing health care benefits to its employees. In practical terms, self-funded employers pay for each claim “out of pocket” as it is presented instead of paying a fixed premium to an insurance carrier for a fully insured plan.

Most self-funded employers purchase what is known as stop-loss insurance, also called excess loss or reinsurance coverage.