For many companies, the transition from fully insured health benefits to a self-funded model offers a path to significant cost savings, greater transparency, and better plan control. However, the decision requires a structured approach to manage the risks and maximize the rewards.
This article provides a five-step roadmap detailing the essential process for evaluating and executing a successful self-funding transition. Follow these steps to prepare your company for a streamlined move to a more efficient, cost-controlled benefits structure.
1. Complete a feasibility analysis
We can’t talk tactics without talking strategy. Step one is to complete a feasibility analysis. First, have your advisors analyze your company’s situation and project what self-funding might look like. Create a risk/benefit analysis and a cost projection – this is about getting the facts.
A simple feasibility study will show, in dollars, the pros and cons. Everything discussed can be made specific to your company. Use your claims data (or if data is limited, use industry benchmarks adjusted for your demographics) and current premiums to model what self-funding would have looked like for you in the past year or two.
The analysis should be clear and actionable: an apples-to-apples comparison of staying fully insured versus going self-funded, including best-case, worst-case scenarios. It should project upcoming year costs, and it should determine the appropriate stop-loss level and its premium. This analysis should help you understand exactly how stop-loss could protect you and what your potential savings might be over the next three years.
There’s no downside to this step. A feasibility analysis will either confirm whether it’s best to stay put or show you a pathway to significant savings with safety nets.
2. If it’s feasible, redesign the plan with safeguards.
If the analysis looks promising, your advisors will redesign the plan. That means mirroring or improving what you already have – choosing a TPA or administrative platform, structuring the stop-loss coverage (selecting appropriate deductible levels, etc.), and choosing a pharmacy benefit manager.
3. Choose the right partners.
Your self-funded plan is only as good as the team behind it. Choosing the right partners is arguably the most critical step for long-term success. Evaluate potential vendors based on transparency, financial alignment, and proven performance.
Advisors
Choosing an advisor is like picking a CFO for your health plan. You want transparency, a proven system, and relentless accountability. Traditional brokers often live on carrier commissions and renewal “bonuses” that rise when your costs rise, creating a built‑in conflict. True advisors flip that model – they work as fiduciaries, are paid transparently by you, and orchestrate every vendor so the plan performs like a well‑run P & L.
Your Advisor = Your Fiduciary, Not a Fee-Chasing Broker
Here are three things to consider when evaluating health plan advisors:
1. Compensation transparency and fiduciary duty – Ask to see every revenue stream, including commissions, overrides and consulting fees, and require a written fiduciary pledge that the advisor’s duty is to the plan, not the carrier.
2. Proven framework and certification – Request a playbook of bundled payments, transparent PBMs, and outcome‑based contracts. Also look for published case studies and third‑party audits of savings and quality improvements.
3. Execution muscle and accountability – Confirm the advisors have in‑house data analytics, compliance experts, and vendor‑management teams, and don’t be afraid to demand quarterly performance reviews against key performance indicators.
Stop-Loss Coverage
Stop‑loss is the safety net that keeps a self‑funded plan from becoming a balance sheet disaster. Yet policies are not interchangeable. They differ in contract terms (incurred vs. paid windows), reimbursement timelines, and how aggressively they “laser” high‑risk individuals. A great policy turns volatility into a known, budgetable cap; a mediocre one still leaves gaps.
Here are three things to consider when evaluating stop-loss partners:
1. Contract basis and run‑out window – Make sure the policy is paid‑within‑policy‑year or has a long run‑out tail, so late‑paid claims aren’t rejected.
2. Laser and exclusion clauses – Insist on “no new lasers at renewal” language and review any exclusions that may be hidden in the fine print.
3. Reimbursement speed and carrier solvency – Ask: How quickly will you wire large reimbursements? “Week‑of” payments protect cash flow better than 45‑day cycles, and only A‑rated carriers should make the shortlist.
Stop-loss is about certainty, not just the lowest price. You want an iron-clad contract that pays quickly, avoids surprise lasers, and matches your claims-paid timeline.
Pharmacy Benefits
Pharmacy spend is the fastest‑rising line item for most health plans, and it’s typically driven by specialty drugs. A pure “spread” pharmacy benefit manager hides margins. A pass‑through PBM exposes them, but price transparency alone doesn’t manage risk – clinical oversight and alternative funding do.
Here are three things to consider when structuring your pharmacy benefits:
1. Contract economics – Require pass‑through pricing, no spread on generics, and 100 % rebate pass‑back to the plan.
2. Clinical and financial controls – Layer a concierge pharmacy team on top of the PBM to manage specialty scripts, source international equivalents when it’s legal, and maximize manufacturer assistance.
3. Stop‑loss coordination – Ensure that specialty claims accumulation feeds your stop‑loss trigger accurately, so reimbursements aren’t delayed over coding mismatches.
Build a Two-Layer Shield: Transparent PBM + Concierge Oversight
Think of your PBM contract as the floor, a baseline of protection. The concierge layer is the ceiling‑lowering force that tackles every six‑figure claim, hunts rebates, and navigates prescription sourcing so you never pay retail.
Third-Party Administrators (TPAs)
A TPA should be like the “engine room” of your plan – you want one that runs quietly and transparently. TPAs are the operational “backbone.” They process claims, issue ID cards, answer member calls, and supply the data you’ll use to steer the plan. Some TPAs act like mini‑insurers – opaque and slow – while high‑performers are tech‑enabled, transparent, and financially aligned with the employer.
Here are three things to consider when choosing a TPA:
1. Data accessibility and reporting cadence – You should have access to real‑time dashboards and monthly deep dives, not just once‑a‑year renewal packets.
2. Network flexibility and contracting options – Confirm that the TPA can administer both broad “nat‑net” (e.g. BCBS) and any direct‑contract arrangements you may add later.
3. Member experience KPIs – Check call‑answer times, first‑call resolution rates, and claims‑turnaround service level agreements. Poor service erodes perception of the entire plan.
A good TPA should feel invisible to your employees: claims pay on time, questions are answered quickly, and you see your data anytime you want it.
Medical Networks
National carrier networks (like Blue Cross Blue Shield, United Healthcare, Cigna and others) offer breadth, but they typically provide little with regard to steerage toward high‑value providers. Direct contracts and narrow “high‑performance” networks trade breadth for predictable pricing and quality. Most self‑funded employers blend the two.
Here are three things to consider when selecting medical networks:
1. Access vs. steerage – Decide how much open access your culture requires, then build voluntary steerage (centers of excellence, bundled pricing) to drive smart choices.
2. Quality and transparency metrics – Use independent datasets (like Leapfrog, CMS, and Quantros) to ensure contracted hospitals and surgeons actually outperform the market.
3. Contracting levers – Look for reference‑based pricing, bundled episode payments, or direct primary‑care affiliations to cut out middle‑layer markups.
The goal isn’t to narrow networks blindly, it’s to earn lower costs through better quality. Keep broad access where it matters and bolt on direct‐contract bundles for high‑ticket procedures that can be shopped around.
Point Solutions
Digital health vendors explode overnight. Many overlap, few integrate, and some simply add noise. The art is to curate a short list that plugs specific gaps (primary care access, pharmacy savings, complex‑care advocacy) and reports a measurable return on investment. Be wary of having too many – they can quickly complicate plan usage for members.
Here are three things to consider when reviewing point solution opportunities:
1. Population fit and predictive data – Let claims and demographic analytics tell you where the pain points are for your plan, such as with diabetes or prescription waste. Use this information to choose solutions like Direct Primary Care, HaloScrips, or Milu Health that can directly address them.
2. Integration and contract terms – Require single‑sign‑on, shared data feeds with the TPA and no “black‑box” outcomes reporting. Short opt‑out clauses help keep vendors accountable.
3. Engagement strategy – Budget for multi‑channel launch campaigns and incentives. Even best‑in‑class tools fail without marketing and HR support.
Point solutions should be precision tools, not clutter. Use data to shortlist only what your workforce needs, integrate each tool with the TPA and PBM, and set hard return on investment targets so every program proves its worth.
4. Develop a transition strategy.
Once you’re ready to make the change, you’ll need a plan. Your advisors will manage implementation – things like transferring data, issuing new ID cards to employees, and communicating the changes to members so they understand any differences. This can be done with minimal disruption. Often, employees notice no difference except maybe new insurance cards (and, of course, an improved experience in the long run).
5. Monitor and improve.
Once it’s live, your plan is not static. It’s an ongoing managed process. Your advisors will watch the plan’s performance closely (with monthly and quarterly reviews) and re-evaluate the stop-loss policy every year to ensure you’re always optimized. When a new high-cost claimant appears, they will engage point solutions to triage the case immediately.
Self-funding is a structured, managed product – not a risky plunge.
Ready to Learn More?
This article is a roadmap for those who have already decided to consider self-funding. If you’re still in the information-gathering phase, start with the eBook by Phil Baker, founder of HaloScrips and Good Shepherd Health Institute. Self-Funding Without FearTM is a more comprehensive guide to walk employers through the process of transitioning from a fully insured health plan to a self-funded one. Download it for free here.