Self-Funded Health Care Plans

If you work for a large employer or a government agency, there is a good chance your health care plan is self-funded or self-insured. Instead of buying a group contract from a health insurance company, the employer pays health care expenses out of the employer's own pocket. The employer is at risk rather than transferring the risk to an insurer. It's not insurance, although a self-funded health care plan may look like insurance to the employee.

Self-funded health care plans may work best for employers that are large enough to offer good coverage and pay expensive claims for medical services. As long as claims are being paid you may not notice or care whether your employer has provided coverage through a fully insured plan or a self-funded health care plan.

Employers contract with entities such as insurance companies and third party administrators to administer the self-funded health care plan. Administering the plan means the contracted entity collects premiums and processes claims on behalf of the employer.

The easiest way to find out if your health care is self-funded or self-insured is to ask your employer. You may also find the answer in the benefit information provided by your employer. Often the word "plan" or "Summary Plan Description" is included as part of the name of the coverage if it is a self-funded health care plan. Most large employers provide health care benefits through self-funded health care plans.

The Department of Insurance and Financial Services (DIFS) does not have authority over the contracts for self-funded health care plans created by employers, but DIFS does have authority over the administrators of these plans. In the case of local government plans, such as cities, counties, state colleges and universities, and the State of Michigan, DIFS handles external appeals, or requests by a consumer for an independent review of a denial, reduction or termination of a health service, for these plans, regardless of whether the plan is fully insured or self-funded.

A third party administrator (TPA) is a person or entity that processes claims and may perform other administrative services in accordance with a service contract. DIFS has authority over TPAs. An employer with a self-funded plan normally hires a TPA to collect premiums, pay claims and handle other paperwork.

Many insurance companies contract as TPAs for self-funded health care plans. This can disguise the fact that your plan is a self-funded health care plan. The administrator's name appears along with the employer's on your benefits booklet and claim forms, just as if it were your insurance company. Your employer provides the money, decides what benefits to offer and what claims to pay. The TPA follows your employer's instructions. DIFS may be able to assist with some problems by contacting the third party administrator. To access the DIFS health coverage complaint form, click here.

You may have appeal rights under the Federal Employee Retirement Income Security Act (ERISA) and you may wish to contact the U.S. Department of Labor.

U.S. Department of Labor
Employee Benefits Security Administration
Cincinnati Regional Office
1885 Dixie Highway, Suite 210
Fort Wright, KY 41011

Most state laws requiring specific health care benefits do not apply to self-funded health care plans.

The U.S. Department of Labor's website provides information regarding self-funded health care plans and ERISA. For more information please click on the following links: