Exploring Self-Funding and the Shift Away from Fully Insured Health Plans
Health care affordability continues to dominate conversations among employers, policymakers, health care providers, and employees alike. Rising medical and prescription drug costs have forced organizations to take a look at how their health benefits are funded and managed.
Today, organizations of all sizes view self‑funding as a viable option — not just large national corporations. Self-insurance has increased in small and medium-sized firms, and more employers are exploring self-funded strategies as they search for transparency, flexibility, and control over health care spending.
Organizations are looking for solutions that provide:
- More control over health care spending
- Better access to claims data and insights
- Flexibility in benefit design
- Improved member engagement
- Greater transparency across medical and pharmacy programs
- Long-term sustainability
What is a Self-Funded Health Plan?
At its core, a self-funded (or self-insured) health plan means the employer pays employee health care claims directly instead of paying a premium to an insurance carrier.
Employers gain greater visibility into spending and avoid many of the hidden fees, markups, and rigid plan structures commonly associated with traditional commercial plans.
Rather than purchasing a traditional fully insured plan, employers typically:
- Set aside funds to pay claims
- Partner with a pharmacy benefit manager (PBM) to manage prescription drug benefits and third-party administrator (TPA) to manage additional benefits
- Potentially purchase stop-loss insurance to protect against catastrophic or unexpectedly high claims
While employees may not notice major differences in how they access care, the funding mechanism behind the plan changes significantly.
The Growth of Self-Funding
Self-funded health coverage has steadily increased over the last several decades. According to the Employee Benefit Research Institute, approximately 67% of workers with employer-sponsored coverage are now enrolled in self-funded plans.
Employers are increasingly becoming more proactive in health care decision-making as they evaluate:
- Rising medical and pharmacy costs
- Financial risk and company cash flow
- Customizable benefit design
- Regulatory considerations
- Employee expectations
For many organizations, self-funding aligns more closely with how they already manage other business expenses and operational risks.
Increased Healthcare Premiums and Monthly Financial Strain
Healthcare premiums have continued to rise faster than inflation, placing pressure on both employers and employees.
The reality is that employees are increasingly worried about health care affordability, particularly monthly payroll deductions, deductibles, and prescription drug costs.
The table below highlights single coverage estimates during March 2025, from the U.S. Bureau of Labor Statistics with the numbers continuing to climb.
*Amounts may vary based on earnings or length of service.
**Among workers required to contribute to premiums.
The data shows that most employees continue to share in the cost of health care coverage. In fact, 87% of workers enrolled in employer-sponsored plans still contribute monthly premiums averaging $158.15 for single coverage.
As health care expenses continue to increase, employers are looking for ways to balance affordability while maintaining competitive benefits.
The Financial Appeal of Self-Funding
One of the primary drivers behind self-funding is the potential for cost savings.
When managed effectively, self-funded plans can reduce overall health care spending by an estimated 8% -10% through:
- Avoiding state premium taxes, which may account for 2-3% of costs (varies)
- Reducing carrier administrative expenses and profit margins
- Implementing customized clinical management programs
- Increasing transparency into medical and pharmacy claims
- Creating more strategic benefit designs
Unlike fully insured models where employers pay fixed premiums regardless of actual claims activity, self-funded plans allow organizations to retain savings when claims are lower than expected.
Employers can design benefits around the specific needs of their workforce.
Prescription Drug Costs
Prescription drug spending remains one of the fastest-growing areas of health care costs.
The U.S. spends more than other countries for prescription drugs, and affordability continues to be a major concern for employers and employees alike. Some insurers have already projected higher premiums due in part to anticipated increases in drug costs.
GLP-1 medications used for diabetes and weight management have become one of the most significant cost drivers for employer health plans.
For employers evaluating self-funding, pharmacy benefit management often becomes a critical area for savings opportunities. The right PBM partner helps leverage:
- Greater pricing transparency
- Flexible formulary design
- Rebate visibility (FYI, this is a big deal)
- Clinical oversight programs
- Utilization management controls
- Customized approaches to specialty and high-cost medications
Ease of Transition is Improving
One misconception about self-funding is that employers must completely redesign their benefits or create major disruption for employees.
Many organizations can transition from fully insured to self-funded plans while keeping much of the employee experience the same, including:
- Provider networks
- Benefit structures
- Pharmacy programs
- Member support resources
For employees, the transition may feel nearly seamless. For employers, however, financial and operational flexibility can be significant.
Final Thoughts
Health care costs are unlikely to stabilize anytime soon, and employers continue to face difficult decisions around affordability, access, and benefit sustainability. For many organizations, self-funding offers an opportunity to move beyond the limitations of traditional fully insured plans and gain greater control over health care strategy. While self-funding is not a one-size-fits-all solution, the growing interest across the market demonstrates that employers are actively seeking alternatives for more control.
About Pharmacy Benefit Dimensions
Founded in 1998, Pharmacy Benefit Dimensions (PBDRx) was born out of a not-for-profit health plan with strong provider and health system relationships to meet the market’s need for a high performing, value-based pharmacy benefit manager (PBM). Since then, we have partnered with employers, brokers, health plans, third party administrators (TPAs), and PBMs to provide effective pharmacy benefit strategies for Self-Funded Plans and Employer Group Waiver Plan Prescription Drug Plans (EGWP PDPs).
References
Employee Benefit Research Institute. (2025). Trends in self-insured health coverage: ERISA at 50. https://www.ebri.org/content/trends-in-self-insured-health-coverage--erisa-at-50
U.S. Bureau of Labor Statistics. (2025). Medical care premiums in the United States. https://www.bls.gov/ebs/factsheets/medical-care-premiums-in-the-united-states.htm#sectionii
Kaiser Family Foundation. (2025). Polling on prescription drug costs and affordability. https://www.kff.org
U.S. Government Accountability Office. (n.d.). Prescription drug spending. U.S. Government Accountability Office. https://www.gao.gov/prescription-drug-spending
JD Supra. (n.d.). Self-funded health plans: Breaking the mold. https://www.jdsupra.com/legalnews/self-funded-health-plans-breaking-the-4596908/