How do self-funded health plans differ from traditional plans?

Self-funded health plans represent a system in which the employer assumes the financial risk associated with providing health care benefits to employees, rather than relying on an insurance carrier. In this arrangement, the employer pays for the health care claims directly, rather than paying premiums to an insurance company that, in turn, covers employee claims.

This design allows employers to have greater control over their benefit plans, potentially leading to cost savings through reduced premiums and claims expenses, as they are only responsible for the claims that arise rather than pre-paying for a range of expected services typically managed by an insurer. Additionally, self-funded plans can offer more flexibility in plan design and management, making it easier for an organization to tailor benefits specifically to their employee population.

The other options are less applicable to the fundamental nature of self-funded plans. While employees may see a variety of costs associated with their benefits, this is not inherently a characteristic of self-funded as opposed to traditional plans. Similarly, the variety of services covered and the presence of administrative fees can vary widely in both plan types and are not defining characteristics of a self-funded arrangement.