Kids and Health Care: Self-Funded Plans
If you get health coverage through your work (and you work for a larger company), your employer may have set up a system by which it pays directly for employee health care expenses.
A self-funded plan is a program that allows a financially-secure employer to assume the risk for health care costs instead of transferring the risk to an insurance company. Instead of paying policy premiums, the employer places money into a secured account that pays for health care services itself.
A self-funded plan may be an indemnity program that reimburses covered employees for medical care they have received. Or, the employer may provide benefits through the service plan offered under an HMO, or through a PPO network.
Self-funded plans aren't always easy to recognize. Some employers self-insure but pay an insurer to administer the plan and process claims. In these cases, the employees may think that the insurance company is actually funding coverage. It's not.
Not all self-funded plans use outside administrators. If your employer self-funds, it may just have a department set up to handle medical claims.
A self-insured plan is a less expensive way for an employer to provide health care benefits, provided the claims experience is favorable and the employer can realize a good rate of return on the money deposited in the trust account.
Many large employers use self-funded plans to cover their employees' dental expenses, because dental insurance is relatively expensive and difficult to get.
Self-funded plans can work well for all parties. The one caveat to keep in mind, if your employer self-funds health coverage: Although there are federal benefits laws that regulate these plans, they are inevitably subject to the employer's own fiscal stability. If the employer goes bankrupt, the health coverage can evaporate.
