Self-funded health plans and the TPA's role

Updated October 21, 2026

A self-funded health plan is one in which the employer pays its employees’ medical claims from its own funds instead of buying an insurance policy that takes on that risk. Nearly all self-funded employers hire a third party administrator (TPA), or an insurer under an administrative services only (ASO) contract, to run the plan, and many buy stop-loss insurance to cap large losses.

What is a self-funded health plan?

A self-funded plan is one where the employer, not an insurer, carries the cost of claims. In KFF’s definition, the employer assumes direct financial responsibility for the costs of enrollees’ medical claims. In a fully insured plan, the employer contracts with a health plan that takes on that responsibility instead.

A self-funding employer decides what benefits to offer, pays the claims of employees and their families, and assumes the risk. The money can come from the employer’s general assets or a plan trust.

Both private and public employers can self-fund. But the exemption from most state insurance laws under the Employee Retirement Income Security Act of 1974 (ERISA) applies to self-funded plans of private employers, not public employers. Public entities can browse TPAs that serve public-sector plans.

How common are self-funded health plans?

Self-funding is the most common arrangement for workers with employer coverage. In KFF’s 2025 Employer Health Benefits Survey, 67% of covered workers were in a self-funded plan, similar to 65% the year before and 66% ten years earlier.

The share rises steeply with firm size, according to KFF’s figure data:

Overall, 27% of covered workers at firms with 10 to 199 workers are self-funded, versus 80% at firms with 200 or more. Many smaller employers use a hybrid: 37% of covered workers at firms with 10 to 199 workers are in a level-funded plan, which the guide to level-funded health plans covers.

KFF found 58% of covered workers at public employers and 69% at private employers in self-funded plans, a gap its tests did not find statistically significant.

What is the difference between self-funded and fully insured plans?

The core difference is who pays when claims arrive, and most other differences follow from it.

ERISA exempts private self-funded plans from most state insurance laws, including reserve requirements, mandated benefits, premium taxes and some consumer protection rules. Federal rules still apply: self-funded plans are subject to the group market reforms, such as the bans on lifetime and annual limits and pre-existing condition exclusions, and coverage of dependents to age 26. Because the details turn on your plan and your states, confirm them with benefits counsel.

On the insured side, insurers must spend 80% of premiums in the small group market, or 85% in the large group market, on care and quality improvement, or pay a rebate to the group policyholder.

On data, federal law bars group health plans from agreements with a provider, network or TPA that block electronic access to de-identified claims and encounter information. That rule covers insured and self-funded plans alike.

How does stop-loss insurance work?

Stop-loss insurance reimburses the employer for claims above a set amount, called the attachment point. It insures only the employer, and plan members still rely on the employer for their benefits. There are two main types, described by KFF with examples from the Department of Labor:

In a worked example from the NAIC, a plan with a $25,000 specific attachment point faces a $1.5 million claim. The employer pays $25,000 and the stop-loss insurer pays $1.475 million.

At firms with 200 or more workers, 75% of covered workers in self-funded plans are in plans with stop-loss. At firms with 5,000 or more workers the figure is 66%.

Two policy features shape renewal and exit. Stop-loss policies run for one-year terms and are re-underwritten each year, so the insurer can raise rates or set a higher “laser” attachment point for people with high-cost conditions. And unless the policy adds extended coverage, it reimburses only claims incurred and paid in the same policy year. The directory lists TPAs that coordinate stop-loss for the plans they administer.

Who administers a self-funded plan?

Almost every self-funded employer outsources administration. The NAIC reports that nearly all employers with self-funded plans, except some of the largest, hire TPAs, including insurers with ASO contracts. That leaves two broad routes:

• A TPA. A firm that administers the plan for a fee without taking on the claims risk. Some TPAs are independent and some are owned by a carrier.
• A carrier’s ASO product. An insurer administers the self-funded plan under an administrative services only contract, again without taking the claims risk.

You can browse TPAs that administer self-funded employer plans or look by state.

The guide to TPA vs ASO compares the two. One thing to check: the NAIC found that some stop-loss insurers require a specific TPA, often one they own or work closely with, and some end coverage if the employer changes TPAs.

What does a TPA do for a self-funded plan?

The TPA runs the plan day to day while the employer funds the claims. According to the NAIC, TPAs usually help design the benefit package, estimate costs, support compliance with legal and notice requirements, offer cost management such as network access and care management, handle enrollment and process claims. The employer pays a fee and provides the “checkbook” for claims.

Administration also covers paying claims, resolving disputes and negotiating payment rates. In practice that shows up as services you can filter by:

• Provider network access
• Care management and utilization review
• Cost containment

The TPA contract should spell out who prepares the summary plan description and notices, how the claims account is funded, how run-out and run-in claims are handled, and what happens at renewal or termination.

What stays with the employer?

The employer keeps legal responsibility. The Department of Labor says hiring a service provider is itself a fiduciary function, and the employer must monitor the provider by reviewing its reports, checking actual fees and asking about its claims processing. A TPA that performs only ministerial tasks is not a fiduciary, but that may change if it exercises discretion over benefit eligibility. The NAIC adds that if the TPA makes a mistake, the employer may be held responsible.

Data access belongs in the contract too. Federal guidance treats limits such as claims reviews no more than once a year, or data access only on the TPA’s premises, as possible prohibited gag clauses. For questions to ask, see how to choose a TPA and what a TPA costs.

Is self-funding a good fit for your group?

Fit depends mostly on group size, cash reserves and tolerance for costs that vary month to month.

Signs self-funding may fit:

• A larger workforce. Large groups’ claims can be forecast more accurately, which is consistent with KFF’s size pattern above.
• Employees in several states. Self-funding lets an employer offer one plan across states without state-by-state mandate differences.
• Cash to cover claim timing. If a large claim arrives in January, the employer must pay the full specific attachment amount up front.
• A plan to use claims data. Better data access helps employers evaluate costs and set up cost containment.

Signs it may not fit:

• A small group with thin reserves. The smaller the group, the less predictable its claims, which can strain cash in high-claim months.
• A need for a fixed budget. Fully insured premiums are fixed, which can make budgeting and cash flow easier.
• Known high-cost conditions. Stop-loss renewal may bring higher rates or lasered attachment points.
• No one to oversee vendors. The fiduciary duty to monitor stays with the employer.

For small employers, level-funded plans pair self-funding with a fixed monthly payment.