As a business owner or HR manager in Arkansas, offering health insurance to your employees is a critical responsibility and a significant expense. One increasingly popular option for employers is a self-funded health plan. Unlike traditional fully insured plans, self-funding gives your company more control over plan design, pharmacy benefits, and overall healthcare spending.
This article explains how self-funded health plans work, the parties involved, potential savings, and whether this option is a good fit for your business.
What is a Self-Funded Health Plan?
A self-funded (or self-insured) health plan means the employer assumes the financial risk for providing health benefits to employees. Instead of paying fixed premiums to an insurance company, the employer pays for claims out of its own funds as they occur.
Self-funded plans are often paired with stop-loss insurance to protect against unexpectedly high claims, making this approach accessible to a wide range of employers by limiting their overall financial exposure.
How a Self-Funded Health Plan Works
Several parties are involved in a self-funded arrangement:
- Employer – Funds claims, sets plan design, and manages financial risk.
- Employee Benefits Agent/Broker – Advises on plan design, vendors, and compliance; assists in employee communication, and is the primary resource for all needs of the employer.
- Third-Party Administrator (TPA) – Handles the day-to-day operation of the health plan, including claims processing, plan administration, reporting, and compliance.
- Pharmacy Benefit Manager (PBM) – Manages prescription drug coverage, negotiates rebates, and administers pharmacy claims for the health plan.
- Stop-Loss Carrier – Provides insurance coverage for high-cost claims above a set threshold, protecting the employer’s financial exposure.
- Carrier Medical Network – Offers access to in-network providers, negotiated rates, and other network services to ensure employees receive care efficiently.
This structure allows the employer to control the plan design while leveraging specialized partners for claims processing, pharmacy management, and risk protection.
Increased Flexibility for Employers
One of the biggest advantages of self-funding is the flexibility it provides:
- Plan Design – Customize deductibles, copays, coinsurance, and coverages to fit employee needs.
- Pharmacy Design – Implement formularies, rebates, and consumer advocacy programs to reduce drug costs. PBMs also deliver savings through pharmacy rebates, international drug sourcing, consumer advocacy programs, and other sources.
- Wellness Programs – Integrate targeted wellness and disease management programs aligned with your workforce to incentivize employee health and reduce claims.
- Choice of Providers – Select carrier networks or carve-out services to control cost and improve access.
This flexibility allows employers to design a plan that meets employee needs while managing costs more effectively than a one-size-fits-all fully insured plan.
Potential Savings with Self-Funding
Employers can achieve significant savings through self-funding by:
- Avoiding Carrier Profit Margins – You pay only actual claims plus administrative fees, rather than fixed premiums that include insurer profit.
- Retaining Rebates and Surplus – PBM rebates and claims savings can be returned to the employer and potentially passed back to employees. These rebates and savings are retained by the insurer as its own profit in a fully insured health plan.
- Customizing Pharmacy and Wellness Programs – Targeted programs can lower utilization of high-cost services and prescriptions.
- Transparency in Claims – Direct access to claims data allows better decision-making and cost control.
Many employers find that savings of 10–20% on their health plan spend are achievable over time.
Financial Responsibility and Administrative Considerations
While self-funding offers control and potential savings, it also places more financial and administrative responsibility on the employer:
- Cash Flow Management – The employer must have sufficient reserves to pay claims as they occur.
- Stop-Loss Premiums – Additional insurance is needed for catastrophic claims.
- HR & Administration – Handling claims oversight, employee communications, compliance with ERISA, ACA, and HIPAA, and coordinating multiple vendors requires dedicated HR resources.
- Risk Exposure – High-cost claims can occur unexpectedly, which is why stop-loss insurance is critical.
Self-funding is generally better suited for employers with at least 50–100 employees, although some small groups may self-fund with proper risk management and stop-loss coverage. Larger companies can see even greater savings and flexibility.
Is Self-Funding Right for Your Company?
Self-funded health plans are an excellent option for Arkansas employers who:
- Want more control over plan design and pharmacy benefits.
- Are comfortable managing financial risk with stop-loss protection.
- Have HR resources capable of coordinating multiple vendors.
- Seek transparency in claims and cost management.
- Are looking for long-term cost savings compared to fully insured plans.
For smaller companies, alternatives like level-funded plans can provide many of the same benefits with lower financial risk and administrative burden.
Final Thoughts
Self-funded health plans offer Arkansas employers flexibility, potential savings, and transparency, but they also come with financial responsibility and administrative requirements. Understanding the parties involved, the plan structure, and the options for plan design is critical before making the switch.
At Stepka and Associates,we help business owners and HR managers navigate self-funded health plans, evaluate risk, and design benefits that meet both employee needs and budget goals. Contact us today to speak with an expert and learn if self-funding is right for your company.