A fully insured premium is a single payment covering everything. A self-funded arrangement separates it into parts you can see — and two of those parts are fixed.
Money set aside to pay actual medical claims. Variable, and the only part that moves with how the year goes. Unspent, it stays with you.
Insurance for the plan itself. Specific stop-loss caps any one person's claims; aggregate stop-loss caps the group's total. Fixed for the year.
The third-party administrator processing claims, plus network access. A per-employee-per-month fee, and the ACA, ERISA and 5500 work that follows from sponsoring the plan.
Underwriters project what your group should cost in claims over the year. That figure is expected claims. The corridor is the margin above it that you agree to fund before aggregate stop-loss takes over.
Think of expected claims as the distance you plan to drive, and the corridor as the reserve in the tank. You almost certainly will not need all of it. You are still buying it.
Most groups are quoted somewhere between 110% and 125% of expected. Smaller or more volatile groups are sometimes pushed toward 150%.
Neither is right in the abstract. It is a cash-flow question, and the answer turns on whether an unusually heavy quarter would be inconvenient or genuinely difficult.
Enter your expected annual premium, then drag the claims dial. Watch how a better-than-expected year returns money to your group — and how the corridor and stop-loss cap protect you if claims run high.
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This is the version most employers under a hundred lives actually buy, and it is where the conversation should usually start.
Expected claims is not a guess. It is a calculation off your own group — and knowing the inputs tells you which of them you can do anything about.
The single biggest driver, and the one nobody can negotiate. A census skewed older prices higher regardless of how healthy everyone is.
Larger groups are more statistically credible, so their own history counts for more and manual rates count for less. Below about fifty lives, one heavy claimant moves everything.
Standard industry codes carry loadings. Office-based work prices differently from construction or manufacturing.
Where your employees live, not where the company is registered. Provider costs vary widely between markets, and a remote workforce spreads you across several at once.
Deductible, coinsurance and out-of-pocket maximum. This is the lever you actually control, and the one most worth modelling properly.
Large claimants and ongoing conditions. A specific claimant can be lasered — given their own higher deductible — rather than priced into the whole group.
On top of all of that, underwriters apply medical trend — forward-looking inflation for the coming year. It has been running in high single digits, and it is applied before any of your own experience is taken into account. A group whose claims were flat year over year will still see a renewal increase, and this is where it comes from.
"Self-funded" describes who carries the claims risk, not how the arrangement is put together. There are three shapes, and they suit very different employers.
Level-funding is the gentlest way in; going it alone gives the deepest transparency. Captives and consortiums sit between the two — more control than a level-funded contract, less exposure than doing it by yourself.
You hold the whole claims risk, buy your own stop-loss, and keep one hundred percent of any surplus. Complete visibility of where the money goes. You also absorb every month of volatility yourself, which is why this suits larger and better-capitalised groups.
Several employers jointly own an insurance entity and share a layer of stop-loss risk. Each group's claims fund stays its own, but the shared layer smooths the month-to-month swings that make solo self-funding uncomfortable at smaller sizes. Unused premium in that shared layer typically comes back to members. In exchange you accept collective governance and, usually, a multi-year commitment.
Employers share the pool structure while each keeps its own surplus. The attraction is defined exposure — capped liability, contractual limits on renewal increases, and restrictions on how freely new lasers can be applied. Less upside than a captive in an exceptional year, more predictability across several.
Self-funding is not free money. It is a trade: better economics in a normal year, in exchange for work and some exposure. The trade is usually worth making, but only if you know what you are taking on.
Is the group broadly healthy relative to its age and industry? Is head count stable enough that a month of high claims will not also be a month of cash pressure? Is there somebody who will read a monthly claims report? And is the employer willing to accept a worse year occasionally in exchange for a better average?
Four yes answers and level-funding is very likely worth modelling. Two or three and it still might be. We will tell you when the answer is no — it is a real answer, and it is the right one for plenty of the employers we look at. Very small groups, and groups carrying heavy known claims, are frequently better off fully insured, and we would rather say so than sell a structure that will hurt in year two.
What settles it is not an argument. It is your census, your plan design and real stop-loss quotes, costed side by side against the renewal in front of you.
No fee, and no obligation to move the business. Most employers who contact us are simply trying to work out whether the number in front of them is a fair one.
Waugh Agency has advised employers on health and welfare benefits since 1985. Our full site — including Medicare, individual and travel coverage — is at waughagency.com.
