If you run benefits at a company between 100 and 1,000 employees, there’s a question that quietly shapes almost every other decision you’ll make about healthcare: are you fully insured, or are you self-funded?
The terminology is industry jargon. The decision is straightforward. The implications are enormous — for cost, for control, for what’s even possible to do with onsite primary care.
The two-sentence version
Fully insured: You pay an insurance carrier a fixed premium. The carrier pays the claims. If claims come in higher than premium, the carrier eats it. If claims come in lower, the carrier keeps it.
Self-funded: You pay claims directly out of company funds, usually through a third-party administrator (TPA). You buy stop-loss insurance to cap catastrophic costs. If claims come in lower than budget, you keep the difference. If higher, you absorb it (up to the stop-loss).
That’s the entire difference. Everything else follows from those two facts.
When fully insured makes sense
For very small employers (under ~50 employees) or for employers with extremely volatile claim risk and no risk tolerance, fully insured is the right answer. The carrier absorbs the year-to-year volatility. Renewals are predictable in a narrow band. There’s no claims management burden.
The cost of that predictability is opacity and a markup. You don’t see your actual claims experience — you see a renewal proposal informed by it. You can’t tune the plan to your population because you’re buying a packaged product. You can’t bolt on direct contracting (like onsite primary care or a direct pharmacy) because the carrier owns the network and the claims flow.
When self-funded makes sense
For employers with more than ~150 lives and any tolerance for year-over-year volatility, self-funding usually makes more sense. You see the actual claims data. You can structure the plan however you want. You can directly contract with onsite vendors, with direct PBMs, with reference-based pricing arrangements. You keep good years.
The headline numbers:
- A self-funded employer with 250 employees typically saves 5-10% on total spend just from removing the carrier’s risk margin and admin loading.
- That same employer can layer on direct primary care or onsite to save another 10-25%.
- Direct pharmacy contracting can deliver another 15-30% on Rx spend.
These savings stack only because you control the claims flow. A fully insured employer can’t access them.
Level-funded: the middle ground
Level-funded plans are a hybrid. You pay a fixed monthly amount (predictable, like fully insured) but the underlying structure is self-funded with stop-loss. If claims come in lower than budget, you get a partial refund at year-end. If higher, your downside is capped.
For employers in the 100-300 range who want self-funding’s flexibility but can’t absorb significant claim volatility, level-funded is often the right transition product. It’s also a frequent on-ramp to full self-funding once an employer’s risk tolerance grows.
What self-funded employers can do that fully insured employers can’t
This is the part that’s underappreciated. Self-funding isn’t just about saving the carrier’s margin. It’s about access to a different category of intervention:
- Direct primary care contracting. Onsite or hybrid clinics with payment flowing directly from the employer to the clinic, bypassing the carrier.
- Direct pharmacy contracting. Onsite pharmacy or direct-with-manufacturer pricing, capturing rebate margin that PBMs typically retain.
- Reference-based pricing. Paying providers a multiple of Medicare rates rather than carrier-negotiated rates.
- Network customization. Building a network around the providers your members actually use, not the carrier’s default.
- Data access. Seeing your actual claims experience month over month, in detail, without filtering.
For a 280-employee self-funded employer, layering onsite primary care on top of a self-funded plan is one of the highest-leverage moves available. For the same employer, fully insured, it’s structurally not possible.
What to do if you’re fully insured today
If you’re fully insured at 150+ lives and you’re frustrated with the renewal trajectory, the right first move is usually a feasibility analysis on level-funded or self-funded. Most carriers offer level-funded products. Most TPAs will quote a self-funded structure for a mid-sized employer.
The math typically pencils. The transition takes a renewal cycle. The unlock — access to direct contracting, including onsite primary care — is usually worth the work.
The plan structure isn’t a back-office detail. It’s the gating decision for everything else you might want to do with healthcare benefits.