How Self-Funded Health Plans Work: A Comprehensive Guide

Self-funded health plans are becoming increasingly popular with businesses and organizations of all sizes. This type of health plan offers flexibility and cost savings that traditional health plans don't. But how do self-funded health plans actually work? Here's a comprehensive guide to understanding how self-funded health plans work.  

What is a Self-Funded Health Plan? 

A managed health plan is an arrangement where an employer pays for their employees' health care costs directly, rather than buying insurance to cover those costs. The employer sets aside money to cover employee health care expenses and takes on the financial risk associated with health care costs. 

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Advantages of a Self-Funded Health Plan 

Self-funded health plans offer employers the flexibility to customize their health plans to meet the needs of their employees. They also have the potential to save employers money over traditional health plans. Self-funded health plans are exempt from most state and federal regulations, meaning employers aren't required to pay certain taxes or fees associated with traditional health plans. 

Risks Associated with Self-Funded Health Plans 

While self-funded health plans have potential to save employers money, they also come with some risks. Employers are responsible for paying all of their employees' health care costs, so if costs exceed the amount set aside for health care, the employer is responsible for paying the difference. Employers also need to be aware of the legal and regulatory requirements for self-funded health plans.