Why Self-Funded Health Plans Put Your Company First (Part 2): Busting the Biggest Self-Funding Myths

paford26
5 days ago
4 min read

Last week, we talked about how fully insured plans funnel your dollars to insurance company profits while self-funded plans keep savings in your pocket. But here's what we hear from CFOs and HR leaders all the time: "That sounds great, but isn't self-funding risky/expensive/complicated?"

Let's set the record straight. Most of what you've heard about self-funding is outdated, incomplete, or just plain wrong. Here are the biggest myths, and why they shouldn't stop you from exploring what could be a game-changer for your company.

Myth #1: "Self-Funding Is Too Risky for Our Company"

This is the big one. The myth that keeps CFOs awake at night.

The Reality: Self-funding trades unmanaged risk for managed, controlled risk. With stop-loss insurance, you cap your financial exposure just like a fully insured plan, but you keep the upside when claims are low.

Here's how it works: Let's say you're a 200-employee company. You set a stop-loss threshold at $100,000 per individual claim and $2 million in total claims for the year. Anything above those limits? Your stop-loss carrier covers it. Your risk is actually more predictable than the surprise 25% premium increase your current carrier might hit you with at renewal.

Bottom Line for CFOs: You're not gambling, you're taking calculated risks with clear parameters and keeping the rewards when your team stays healthy.

Myth #2: "Only Fortune 500 Companies Can Self-Fund"

This used to be true. Twenty years ago, you needed massive scale to make self-funding work.

The Reality: Today's self-funded landscape serves companies with as few as 50 employees. Modern TPAs, flexible stop-loss options, and technology platforms have leveled the playing field entirely.

A 150-person marketing agency in Ohio recently switched to self-funding and saved $180,000 in year one, money they reinvested in employee wellness programs and higher-quality specialists in their network. They're not Fortune 500. They just had a smart benefits advisor who knew the landscape had changed.

Bottom Line for HR: Size doesn't matter anymore. What matters is having the right partners and the right plan design.

Myth #3: "Self-Funding Costs More Than Fully Insured"

This myth exists because people confuse cash flow with total cost.

The Reality: Yes, you'll pay claims as they happen instead of fixed monthly premiums. But you eliminate insurance company profit margins, reduce administrative waste, and keep savings when claims are lower than expected.

Consider this: A fully insured plan might cost you $800,000 in premiums. If your actual claims are only $600,000, the carrier keeps that $200,000 difference. With self-funding, you pay the $600,000 in claims plus administrative fees: and pocket the difference.

Bottom Line for CFOs: You're not paying more: you're paying for what you actually use, not what an insurance company thinks you might use.

Myth #4: "Self-Funded Plans Offer Worse Coverage"

This one's backwards.

The Reality: Self-funded plans offer superior coverage because you design them around your actual workforce, not some generic market average.

Your employees are mostly young professionals who value mental health benefits and telemedicine? Build that in. You've got an aging workforce that needs better specialist access? Design for that. With fully insured plans, you get what the carrier thinks the "average" company needs.

Plus, you can implement innovative cost-containment strategies like reference-based pricing, direct primary care, and center-of-excellence programs: options that are impossible with traditional insurance.

Bottom Line for HR: Instead of fighting for scraps from your carrier's standard offerings, you become the architect of your benefits program.

Myth #5: "Fixed Premiums Are More Predictable Than Variable Claims"

CFOs love predictability. We get it. But "fixed" premiums aren't actually fixed.

The Reality: That $50,000 monthly premium becomes $62,500 at renewal when your carrier decides your group is riskier. You have zero control and zero visibility into why.

With self-funding, you use tools like reserve funds and level-funding options to smooth out cash flow while maintaining cost control. Most importantly, you can see exactly where every dollar goes: and take action when you spot trends.

Bottom Line for CFOs: Predictable cash flow without cost control isn't actually predictable: it's just expensive.

Myth #6: "Self-Funding Is Too Complicated to Manage"

This myth assumes you're going it alone.

The Reality: You partner with a TPA (Third Party Administrator) that handles everything from claims processing to regulatory compliance. Think of them as your benefits department's secret weapon.

Modern TPAs like Quilt Benefits provide real-time dashboards, handle all the paperwork, ensure compliance with ACA and ERISA requirements, and give you the insights you need to make smart decisions. You get the control and savings of self-funding without the administrative headaches.

Bottom Line for HR: You're not managing a self-funded plan: you're managing a partnership with experts who make it simple.

The Real Question Isn't "Is Self-Funding Right for Us?"

It's "Can we afford to keep overpaying for less control?"

Every month you stay with a fully insured plan, you're:

Funding insurance company profits instead of employee wellness
Missing out on claims savings that should stay with your business
Accepting benefit designs that don't match your workforce
Operating without the data you need to make smart healthcare decisions

The myths about self-funding made sense when stop-loss insurance was expensive and TPAs were limited. That's not the world we live in anymore.

Smart companies: from 75-person startups to 500-person manufacturers: are making the switch because they've realized something important: healthcare benefits are too critical to your bottom line and your people to leave in someone else's hands.

Ready to see what self-funding would look like for your company? Let's talk specifics, run some numbers, and bust a few more myths along the way.

Next week: Part 3 of our series dives into the nuts and bolts: how to transition to self-funding without disrupting your employees or your cash flow.