Fully Insured vs. Self-Funded Health Plans
The core distinction is who bears the financial risk for covered claims. Buying administrative services or stop-loss insurance does not automatically turn a self-funded plan into a fully insured plan.
Reviewed July 29, 2026 · Source-led practitioner reference
Funding comparison
| Feature | Fully insured | Self-funded |
|---|---|---|
| Claims risk | Transferred to the insurer through the insurance contract | Retained by the plan sponsor, subject to any stop-loss arrangement |
| Cash flow | Employer pays premium | Employer funds covered claims and administrative costs |
| Administration | Insurer commonly performs claims and network functions | Employer may contract with a TPA or carrier under an ASO arrangement |
| State insurance mandates | Apply to the insurance policy | ERISA preemption generally limits direct state regulation of the plan, while stop-loss policies and providers remain regulated |
| Claims volatility | Reflected in premium and renewal pricing | Direct sponsor exposure, often moderated through stop-loss coverage |
ASO is administration, not risk transfer
Under an administrative-services-only arrangement, a carrier or TPA may process claims, provide network access, manage utilization, and deliver reporting while the employer still funds plan benefits. The vendor name on an ID card does not identify who ultimately bears claims risk.
Stop-loss protects the sponsor
Specific stop-loss can respond after claims for one covered individual exceed an attachment point. Aggregate stop-loss can respond when total eligible claims exceed a defined level. Stop-loss generally reimburses the plan sponsor; it is not ordinary participant health insurance.
Operational questions
- Who owns plan design and fiduciary decisions?
- Which entity adjudicates claims and appeals?
- How are claims, fees, rebates, and vendor compensation reported?
- What specific and aggregate attachment points apply?
- Which federal and state rules apply to each component?
Turn reference knowledge into working confidence.
Use this public guide for quick orientation and source review. Inside PrepToPay Benefits, you can study the topic in structured lessons, practice applying it, review flashcards, and track your progress across the broader Benefits curriculum.
Primary sources
- U.S. Department of Labor — 2026 report on self-insured group health plans
- U.S. Department of Labor Technical Release 2014-01 — stop-loss regulation
- U.S. Department of Labor — group health plan fiduciary responsibilities
Educational reference only. Plan documents, governing law, agency guidance, and plan-specific professional advice control.
Keep building your Benefits operations system.
Plan funding is only one layer. Eligibility and waiting-period controls determine when people may enter the plan.