HEALTH POLICY TYPES · 5 MIN READ

Group Funding: Self-Insurance, Stop-Loss, and ERISA

Employers fund group health benefits along a spectrum. A fully insured plan transfers risk to an insurance carrier for a fixed premium and is subject to state insurance regulation. A self-funded (self-insured) plan pays claims from the employer's own assets or a trust; it remains an ERISA employee welfare benefit plan, but it is not insurance for state regulatory purposes — ERISA's deemer clause bars states from deeming the plan an insurer, which is why large multistate employers self-fund to escape fifty different state mandates. Level-funded arrangements give smaller employers a self-funded chassis with predictable monthly payments, and Multiple Employer Welfare Arrangements (MEWAs) and association health plans pool unrelated employers, drawing extra regulatory scrutiny. Some large sponsors even use captive insurance subsidiaries to retain medical risk formally. Self-funding is usually paired with two protections. Stop-loss insurance reimburses the employer, not the employee: specific (individual) stop-loss kicks in when any single claimant's paid claims exceed a per-person attachment point, while aggregate stop-loss reimburses when total plan claims for the year exceed a corridor over expected claims — commonly set at 125% of expected. Administrative Services Only (ASO) contracts hire a carrier or TPA to run eligibility, claims, and appeals while the employer keeps the financial risk of paying benefits; ASO plans are still ERISA welfare plans with Form 5500, summary plan description, and claims-procedure obligations. The same architecture appears for group long-term disability and, with excess coverage, workers compensation. ERISA's enforcement scheme is exclusive. In Aetna Health v. Davila, the Supreme Court held that state-law claims which duplicate, supplement, or supplant ERISA's civil remedies are completely preempted and removable to federal court — a participant suing over a denied benefit is limited to ERISA's remedies when the claim could have been brought under ERISA and no independent state-law duty exists.