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What is a self-funded health plan?

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Updated November 12, 2008

Question: What is a self-funded health plan?
Answer:

A self-funded health plan is a type of job-based health insurance coverage, where the employer pays the claims with its own funds. This is different from fully insured plans, where the employer contracts with an insurance company, such as Aetna or Blue Cross Blue Shield, and the insurer covers the employees and dependents.

This distinction affects you, because although federal insurance laws, such as COBRA and HIPAA, apply to all job-based plans, state insurance regulations apply only to fully insured plans sold through an insurance company. In other words, fully insured plans are governed by both federal and state laws, while self-funded plans are only subject to federal laws. This means that state laws, such as laws mandating that insurance companies cover benefits for certain medical conditions, do not apply to self-funded plans.

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