Published by Joshua True on February 7th, 2025

Why Brokers Should Help Employers Switch

The shift from fully insured to self-funded employee benefits plans is accelerating, as more employers look for cost-effective and flexible ways to manage healthcare coverage. According to Mark Farrah Associates’ (MFA) Health Insurance Enrollment Trends, the self-funded segment gained 2.3 million members between Q3 2023 and Q3 2024, growing to 131.8 million members. Meanwhile, traditional risk-based plans lost 1.5 million members during the same period.

For brokers, this trend represents a prime opportunity to help employers understand what a self-funded health plan is and why it might be a better fit for their business than a fully insured plan. Let’s explore the advantages of self-funded employee benefits, how to make the switch, and the role brokers can play in this critical transition.

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What Is a Self-Funded Health Plan?

As you know, a self-funded health plan allows employers to pay for employee healthcare claims directly, rather than purchasing a traditional insurance policy. Employers may hesitate to take on more financial risk, but they gain greater control over their benefits. This approach is particularly appealing to larger companies, which can spread the risk of high claims across a broader employee base.

Advantages of Self-Funded Employee Benefits

Switching from fully insured to self-funded health benefits offers several distinct advantages that make it an increasingly popular choice for employers:
  1. Cost Savings: Self-funded plans often reduce overall healthcare expenses by eliminating insurance company profit margins and administrative fees. For employers looking to cut costs, this can make a significant impact.
  2. Customization: Self-funded plans let employers design benefits that cater to their workforce's specific needs. Whether it’s enhanced mental health resources, wellness incentives, or targeted preventive care, businesses can prioritize what matters most to their employees.
  3. Transparency: Employers gain greater access to claims data, enabling them to identify cost drivers and implement strategies to manage expenses effectively.
  4. Employer Control: Unlike fully insured plans, self-funded arrangements allow businesses to adapt quickly to changing needs without being locked into rigid policy terms, making carveouts and exceptions when needed.

What’s the Difference Between Self-Funded and Fully Insured Health Benefits Plans?

The primary difference between self-funded and fully insured benefits plans lies in how healthcare claims are funded. In a fully insured plan, employers pay a fixed premium to an insurance company, which assumes the risk of covering employee eligible claims. In a self-insured plan, employers pay eligible claims as they occur, shouldering the risk themselves, but gaining the benefits of lower costs and greater control.

Self-insured plans require employers to manage financial risks, but tools like stop-loss insurance can help mitigate these risks, providing a safety net for high-cost claims.

How to Switch from Fully Insured to Self-Funded Health Benefits

Transitioning to a self-funded plan from a fully insured plan requires thoughtful planning and expert guidance. Here’s how brokers can assist employers in making the switch:
  1. Educate on Self-Funding Basics: Many employers are unfamiliar with how self-funding works. Brokers can explain the process, highlighting cost savings, risk management strategies, and the overall advantages of self-funded employee benefits.
  2. Identify Trusted Partners: Choosing the right third-party administrator (TPA) or benefits administrator is key to a smooth transition. Brokers can recommend experienced providers who align with their clients' goals.
  3. Address Risk Management: A common question is, “Is stop-loss insurance necessary for self-funded plans?” While not mandatory, it’s highly recommended. Brokers can help employers secure stop-loss coverage to protect against catastrophic claims, promoting financial stability.
  4. Streamline the Transition: From analyzing claims data to selecting appropriate benefit designs, brokers can guide employers through each step of the process, enabling a seamless shift to self-funding.

Why Now Is the Right Time for Self-Funding

The MFA report reveals that self-funded plans now account for 41.4% of total health enrollment, and the trend shows no signs of slowing down. With rising healthcare costs and increased demand for flexible benefits, more employers are realizing the benefits of self-funded health plans.

At the same time, fully insured plans are losing ground, according to Mark Farrah Associates’ analysis, with a 3% decline in membership from Q3 2023 to Q3 2024. For brokers, this is the perfect moment to step in and help clients transition to a self-funded model, positioning themselves as trusted advisors in this rapidly changing landscape.

The Bottom Line

Self-funded health plans are transforming the way employers manage benefits. They offer cost savings, customization, transparency, and flexibility—key advantages in today’s competitive marketplace. As brokers, you have the expertise to demystify self-funded vs fully insured health plans, guide employers through the transition, and provide critical support with risk management tools like stop-loss insurance.

With self-funding on the rise, there’s no better time to help your clients explore how to switch from fully insured to self-insured health benefits. By leading this conversation, brokers not only strengthen client relationships but also position themselves as a forward-thinking partner in the world of employee benefits.