Your Insurance Detective › Self-funded & ERISA plans
A self-funded or level-funded (ERISA) plan means your business pays its own employees' claims out of a pooled fund instead of handing a fixed premium to a carrier every month — with stop-loss insurance on top to cap your risk. For a healthier-than-average group it can cost noticeably less than a traditional New York plan, because you keep what you don't spend on claims. It's the option nobody explains to you. My job is simple: I educate, you decide.
I'm Dick Tracy, an independent health insurance broker right here in Western New York. I left the healthcare side of this business so there's no gag clause on me — I'll tell you the tips, the tricks, and the traps. This is the one plan type I get the most excited about for the right group, because it flips the whole game. So let's walk through how it actually works.
In a normal fully-insured plan, you pay the carrier a fixed premium and they keep whatever you don't use. You could have a healthy year with barely any claims, and that money is gone — it's theirs. In a self-funded plan, the business pays its employees' claims out of its own pooled fund. If your team stays healthy, you keep what you don't spend. That's the whole cheat code: you stop donating your good years to the insurance company.
Now, most small-business owners hear "self-funded" and picture a giant corporation taking on scary risk. That's where level-funded comes in — it's the small-business-friendly version. You pay a steady, predictable monthly amount that covers your expected claims, the admin, and the stop-loss. If your group's claims come in low, you get money back. If they come in high, your monthly payment was still fixed. Best of both worlds for a healthy team.
Here's what keeps this from being a gamble: stop-loss insurance sitting on top. Specific stop-loss caps what you'd pay on any one person — so one heart attack or one premature baby can't blow up your fund. Aggregate stop-loss caps your total for the whole year. Once you hit those limits, the stop-loss carrier pays the rest. Pack the parachute before the plane goes down — that's the stop-loss layer, and no honest broker sets up a self-funded plan without it.
This isn't for everybody, and I won't pretend it is. It works best when your team is relatively healthy and you want more control and transparency — you actually get to see where the money goes, which a community-rated New York plan will never show you. If your group has heavy, ongoing claims, a traditional plan might still win. That's the entire point of comparing all three options side by side instead of getting sold the one thing somebody happens to carry.
The business pays its employees' claims out of its own pooled fund instead of handing a fixed premium to a carrier, with stop-loss insurance on top to cap the risk. Level-funded is the small-business version: a steady monthly payment that covers expected claims, admin, and stop-loss, with money back if claims come in low. Both are governed by the federal ERISA law, not New York state insurance rules.
When your group is healthier than average. In a traditional New York plan the carrier keeps whatever you don't use; here, your business keeps that surplus — and can get a refund in a good year. For a heavy-claims group it can cost more, which is exactly why you run it side by side against a traditional plan before you decide.
The scary part — one catastrophic claim draining the fund — is capped by stop-loss. Specific stop-loss limits any single person's claims; aggregate stop-loss limits your total for the year. With a level-funded plan your monthly payment is fixed on top of that, so your worst case is predictable while the upside stays yours.
A fully-insured NY plan is community-rated — the carrier sets the rate by metal tier, keeps the surplus, and your rate isn't based on your team's health. A level-funded plan is underwritten on your actual group, so a healthy team can beat the community rate, get money back in a low-claims year, and see claims-level data a fully-insured plan won't share.
Smaller than most people think — level-funded plans often start around 5 to 10 employees, sometimes fewer. You don't need to be a big corporation. The real question is whether your group is healthy enough that keeping your own claims surplus beats a fixed community-rated premium. I can run both scenarios so you see the actual numbers for your team.