Commentary: Historically, self-funding health insurance was an option that was more attractive to big employers, but that is changing. Self-funding – as opposed to buying insurance from a traditional fully insured carrier – has become a popular topic for discussion among small and medium-sized employers. As with just about everything in health care these days, this is driven in large part by the Affordable Care Act.

The primary advantages of self-funding are the opportunity for cost savings and plan flexibility. Very simply, if an employer self-insures and claims come in under projections, the employer pays less for the coverage. In regard to the ACA, self-insured plans may not be subject to the essential health benefit, community rating and medical loss ratio requirements. Additionally, self-funded plans avoid a portion of the health insurance tax that must be paid to traditional health insurers, as well as various state taxes. In total, the ACA taxes traditional plans at almost twice the rate of self-funded plans.

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