Self-funded health insurance:
stop paying 25% margin to a carrier you can't see into.

IBNR stands for Incurred But Not Reported. It is the pile of claims that happened during your plan year but had not reached your TPA by the time the year closed. Someone has surgery on December 28, and the hospital does not bill until March. That March bill belongs to year one even though the cash goes out in year two. At close, an actuary estimates the exposure, usually 8 to 15 percent of annual claims depending on your size and seasonality, and you hold that as a reserve. First-year employers tend to under-reserve because they still pay on the old fully-insured rhythm, then get hit with a six-figure true-up in the second quarter. Model IBNR before you start, fund it monthly, and settle up at year-end.

A safe target is 30 to 60 days of expected claims plus your IBNR estimate. For a 100-employee group running about 1.5 million dollars in yearly claims, that works out to roughly 250,000 to 400,000 dollars set aside. Think of it as working capital, not an expense, since you would hold it against benefits costs regardless. Most CFOs park it in a separate operating account or back it with a line of credit. Stop-loss caps your catastrophic risk, but it does nothing for the ordinary month-to-month swings, and that is exactly what the reserve is there to absorb. Run self-funded on minimum cash and one ugly month can hand you a surprise wire north of 200,000 dollars.

On a fully-insured plan, the carrier carries most of the ERISA load. It files the Form 5500, keeps the plan documents current, sends out Summary Plan Descriptions, and runs the appeals process. Go self-funded and you become the plan administrator, so all of that lands on you. The heaviest additions: a formal written Plan Document, which is not optional and creates fiduciary liability if it is missing, an SPD sent to participants every year, a Form 5500 once you hit 100 participants, ACA reporting on the self-insured plan, COBRA administration, and HIPAA privacy handling for claims data. You can hand the work to a TPA or consultant, and most employers do, but the legal responsibility never leaves you.

Self-funding delivers the big number when three things line up: a group large enough, past 100 employees, that monthly swings smooth out; a claims history that has held within about 5 percent of expected for two years; and enough patience to stay in it three years or more and let the savings compound. In that profile, 20 to 30 percent under fully-insured is realistic. Weaken any one of those and you are looking at 8 to 15 percent. Savings can vanish, or go negative, if your group carries a chronic high-cost pattern or your stop-loss carrier lasers hard at renewal. The honest version is that the savings are real but conditional. If your claims are not steady, a captive or level-funded plan usually beats pure self-funding.

A TPA runs the day-to-day. It processes claims, manages the provider network, handles enrollment and member questions, and produces your monthly claims reports, so it is who your employees deal with when a claim comes up. A stop-loss carrier is the reinsurer standing behind the plan. It does not touch individual claims; it pays you back once claims blow past your specific or aggregate deductible. Most self-funded employers hire both. Often the TPA comes bundled with a network, since Cigna, Aetna, and BCBS play that role through their ASO products, while stop-loss is bought separately from a specialty reinsurer. The two contracts renew on different clocks, carry different risks, and deserve to be negotiated as separate deals.

Yes, and plenty of groups have done it. The mechanics are simple: at your renewal, end the self-funded plan and bind a fully-insured one effective the same day. The wrinkle is run-out, the claims that were incurred while you were self-funded but do not bill until later. Those stay your responsibility even after the new plan starts, so most employers buy about 12 months of run-out administration from the departing TPA as part of the wind-down. Stop-loss policies often carry run-out provisions that extend cover to those late bills. Moving back usually means something did not click, whether high claims, the compliance grind, or cash-flow stress, but it is not a locked door. Write down what you learned for next time.

Reference-based pricing is a self-funded design that pays providers a set multiple of Medicare, usually 140 to 180 percent, instead of a negotiated network. Handled well, it trims claims costs 20 to 30 percent, because providers cannot bill the inflated commercial rate. The exposure is balance billing. A provider who charged 10,000 dollars but got paid 1,800 can bill the patient the 8,200 dollar gap. Serious RBP administrators like Imagine360 and ELAP build in legal advocacy: they defend members against those bills, negotiate the disputed amount down, and carry the risk if it goes to court. RBP works with a strong administrator and fails badly without one. Do not choose it for the savings alone. Choose it because the administrator can handle the fights that follow.