Self-Funded vs. Fully Insured: Which Fits Your Group?
Self-funding can lower cost and add flexibility — or expose you to volatility you didn't sign up for. Here's how to tell which model fits your business.
The two models, briefly
In a fully insured plan, you pay a fixed premium and the carrier takes the risk: if claims run high, that's their problem. In a self-funded plan, you pay your employees' actual claims as they happen — typically with stop-loss insurance to cap your exposure — and you keep the savings when claims run low.
When self-funding wins
Self-funding tends to favor groups with stable, predictable claims and enough employees to spread risk. The upsides: you only pay for the care your team actually uses, you gain transparency into claims data, you avoid certain state premium taxes, and you get flexibility in plan design. With proper stop-loss, your worst-case cost is capped.
When fully insured wins
Fully insured plans favor smaller groups, groups with variable or higher-risk claims, or employers who simply want a fixed, predictable line item with zero administrative burden. You trade some potential savings for certainty — and for many businesses that certainty is worth it.
The question isn't which model is cheaper on paper. It's which model fits your group's size, risk tolerance, and appetite for administration.
The stop-loss detail that decides it
Stop-loss is what makes self-funding safe. Specific stop-loss caps the claims for any one person; aggregate stop-loss caps total claims for the whole group. The attachment points (where stop-loss kicks in) and contract terms (such as 12/12 vs. 12/15) materially change your real risk. This is exactly where good brokerage earns its keep.
How we'd approach it with you
We model both options against your actual census and claims history, stress-test the self-funded worst case against your cash flow, and show you the numbers side by side. Then you decide with clear eyes — not a sales pitch.
Frequently asked questions
Is self-funding only for large companies?
No. With the right stop-loss, level-funded and self-funded options are increasingly viable for small and mid-size Michigan employers. We'll tell you honestly whether it fits your group.
What is level funding?
Level funding is a hybrid: you pay a steady monthly amount like a premium, but it funds a self-insured arrangement with stop-loss, and you may get money back if claims are low. It's often a good first step toward self-funding.
Agency President of JPW & Consultants, advising Michigan businesses and families on benefits for 20+ years.