4 myths surrounding self-funded health plans
Self-funded health plans aren't only for large employers, and they don't have to be overly expensive.
Self-funded health plans continue to grow in popularity among employers of all sizes. In 2025, about two-thirds of covered workers were enrolled in self-funded plans, according to the KFF 2025 Employer Health Benefits Survey1 — up from 63% the year before.2 But misconceptions still exist, and they may keep employers from exploring an option that may offer more control, flexibility, insight and a lot of built-in value into their health care spending.
Here's the truth about 4 common myths surrounding self-funded plans.
Myth #1: Self-funded health plans are only for large employers
It's true that self-funding has long been associated with large employers, and the numbers bear that out: 80% of covered workers at larger firms are enrolled in self-funded plans.1 But recent research finds that self-funding is growing among small and midsize employers, too.
According to Employee Benefit Research Institute (EBRI), the percentage of small employers that self-insure at least 1 plan increased from 13% in 2010 to 16% in 2023, while medium-sized firms rose from 27% to 32% over the same period.3 Smaller businesses can also benefit from the self-funded model. This approach allows employers to tailor benefits to their workforce's specific needs and size. With access to detailed plan data, including claims and utilization patterns, employers can better customize and optimize their benefits. This data enables smaller employers to make informed decisions about how to better engage their employees in making decisions that may lead to lower costs and better health outcomes.
Myth #2: Self-funded health plans are too risky
With a self-funded plan, the employer assumes the financial risk for employees' health care claims. And while factors like a workforce's age, region and dependents may influence claims, predicting exact costs is impossible. This uncertainty may lead to higher costs — but it may also result in costs that are lower than expected.
One of the most important tools for managing this risk is stop loss insurance, which protects employers from high-cost claims and unexpected spikes in utilization. There are 2 main types:
- Individual stop loss caps what an employer pays for a single individual's claims
- Aggregate stop loss caps total claims exposure across the entire employee population
Stop loss adoption among small self-insured plans specifically has grown significantly, rising from 23% in 2014 to nearly 59% in 2023.4 This suggests that smaller employers are increasingly using stop loss protection to manage risk.
Myth #3: Self-funded health plans are too much work
Self-funded plans may require more effort to set up and administer than fully insured plans, but employers don't have to manage everything on their own.
Many employers partner with a third-party administrator (TPA) like UMR to handle claims processing, provider network access and other administrative tasks. Some integrated solutions combine the benefits administrator and stop loss carrier into a single relationship, which may reduce administrative complexity.
Self-funded plans also give employers access to detailed claims data, which may help them more effectively identify cost drivers, evaluate provider performance and design targeted wellness or disease management programs. This transparency is something fully insured plans don't always offer, since carriers often retain control over claims data.
Myth #4: Self-funded health plans are too expensive
Some employers assume that paying claims directly is more expensive than paying fixed premiums to an insurer. But self-funded plans may offer several financial advantages:
- No insurer profit margins built into premiums — employers pay for actual claims rather than a carrier's worst-case scenario
- Savings when claims are lower than expected — unlike fully insured plans, where unused premium dollars stay with the insurer, employers have the potential to save money
- Greater flexibility in plan design and vendor selection — employers may have more options to tailor coverage and offer additional benefits to their workforce
- Exemption from some state-mandated coverage laws and ACA health insurance taxes — which may reduce overall costs
Access to claims data also enables employers to evaluate vendor performance, identify high-cost or low-value services and help navigate employees toward more cost-effective care options — capabilities that may produce meaningful savings over time.
A note to consider: Self-funded plans aren’t for everyone
That said, self-funded plans may not be right for everyone. If a smaller employer has a workforce with higher health risks, a history of expensive health care claims, turbulence related to the organization's financial health or large fluctuations in staffing, a self-funded health plan may lead to steeper costs. In that case, a fully insured plan — or the middle ground of a level funded plan — may be worth exploring. Explore the trade-offs of different funding options.
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