A self-funded health plan is a coverage arrangement where the plan sponsor pays medical claims directly from a dedicated funding pool rather than buying coverage from an insurance carrier.

The plan uses a third-party administrator and stop loss insurance to protect against catastrophic claims. Apple, Google, Walmart, and most Fortune 500 firms use this structure, now adapted for self-employed business owners through captive group plans like Solo Health Collective.

Self-funded health plans are not new. They are the dominant model for how the largest employers in the United States provide health benefits to their workforces. What’s changed is who has access to the structure. For decades, self-funded coverage was a model reserved for organizations with thousands of covered employees. Today, captive group plans have extended the same funding mechanism to small businesses and businesses-of-one — meaning a self-employed LLC owner or sole proprietor can now access a regulated self-funded health plan built on the same structural principles used by Fortune 500 firms.

This article explains what self-funded health plans are, how they work, how they compare to fully-insured plans, who uses them, and how the structure has been adapted for the self-employed.

How Self-Funded Health Plans Work

In a traditional fully-insured arrangement, an employer pays a fixed premium to an insurance carrier each month. In exchange, the carrier assumes the financial risk of paying claims. The employer’s costs are predictable. The carrier keeps any underwriting profit if claims come in low and absorbs the loss if claims run high.

A self-funded health plan inverts that arrangement. The plan sponsor — historically an employer, but in newer adaptations a captive entity serving small businesses — takes on the financial risk of paying medical claims directly. Instead of paying a fixed premium to a carrier, the sponsor funds a dedicated pool from which incurred claims are paid as they arise. Cost is driven by actual claims experience rather than a pre-determined premium.

Three structural components make this work:

Third-party administrator (TPA). Because the plan sponsor is not an insurance company, it contracts with a third-party administrator to handle plan administration: claims processing, eligibility verification, billing, appeals, and utilization review. The TPA does not assume financial risk for claims — that stays with the plan sponsor. The TPA provides administrative services on a fee basis.

Stop loss insurance. No plan sponsor wants unlimited exposure to high-cost claims. Stop loss insurance — also called reinsurance — protects the plan against catastrophic claims by reimbursing the sponsor when individual claims (specific stop loss) or total claims across the plan year (aggregate stop loss) exceed defined thresholds. Stop loss coverage is what makes self-funding financially viable; without it, a single multi-million-dollar claim could exhaust the funding pool.

Plan document. Every self-funded health plan is governed by a plan document that defines covered benefits, exclusions, eligibility, and claims procedures. This is the controlling document for all coverage determinations — the equivalent of an insurance policy in a fully-insured plan.

The combination of these three components — professional administration, stop loss insurance, and a governing plan document — produces a coverage model that can deliver comprehensive health benefits while giving the plan sponsor more control over plan design, claims data, and cost management than a fully-insured plan typically allows.

What is a self-funded health plan? A self-funded health plan is an employer-sponsored or captive-based arrangement in which medical claims are paid directly from a dedicated funding pool rather than through a traditional insurance carrier. A third-party administrator processes claims, stop loss insurance covers catastrophic exposure, and a governing plan document defines covered benefits and procedures.

Self-Funded vs. Fully-Insured Health Plans

The clearest way to understand a self-funded health plan is to compare it directly to traditional fully-insured coverage.

The financial logic differs in an important way. With a fully-insured plan, the employer’s cost is predictable but rising premiums are largely outside the employer’s control. With a self-funded plan, costs are more variable in the short term but the sponsor has direct visibility into claims costs and more ability to manage costs through plan design, network selection, and utilization management. Over time, self-funded plans frequently produce cost saving opportunities that fully-insured plans cannot.

Who Uses Self-Funded Health Plans

Self-funded health plans are the dominant coverage model for medium and large U.S. employers. According to Kaiser Family Foundation’s 2025 Employer Health Benefits Survey, 67% of covered U.S. workers are in self-funded health plans rather than fully-insured plans — including 80% of workers at firms with 200 or more employees.

The list of major U.S. companies that operate self-funded health plans includes virtually every Fortune 500 firm: Apple, Google, Walmart, Amazon, Microsoft, JPMorgan Chase, Berkshire Hathaway, and ExxonMobil, among many others. Most state governments and large municipalities self-fund their employee health benefits. So do most major universities, hospital systems, and large unions.

The reason large employers favor self-funding is economic. With a large employee population, claims experience becomes statistically predictable from year to year. Stop loss insurance handles outlier events. The carrier’s profit margin and risk premium — built into fully-insured premiums — can be eliminated, with those dollars instead going to covered benefits, plan reserves, or returned to the sponsor. Plan administration costs are paid to the TPA, but the sponsor retains control over plan design and claims data.

Self-funding is not, however, a universal answer. Smaller organizations with limited cash reserves, limited risk tolerance, or volatile claims experience are often better served by fully-insured plans. The decision depends on financial capacity, employee population size, and the sponsor’s tolerance for cost variability across plan years.

Self-Funded Health Plans for Small Businesses and the Self-Employed

For most of the modern era of U.S. health benefits, self-funded health plans were inaccessible to small businesses and entirely unavailable to the self-employed. The financial mechanics didn’t work at small scale: with too few covered lives, claims experience was too volatile, stop loss costs were too high, and administrative overhead was disproportionate to total plan spend.

That structural limitation has changed. Captive group plans — a type of self-funded health plan in which multiple unrelated small businesses combine into a regulated captive insurance entity — make the self-funded model viable at small scale by pooling risk across many participating businesses.

What is a captive group plan? A captive group plan is a self-funded health plan operated through a regulated captive insurance entity that pools participating businesses into a single risk-bearing group. The captive funds claims, contracts with a TPA for administration, and uses reinsurance to protect against catastrophic claims — the same structural model used by Fortune 500 self-funded plans, scaled to serve small businesses and businesses-of-one.

The economics work because the captive aggregates risk across many small businesses. Individually, a single LLC owner couldn’t self-fund anything meaningfully. As a class member of a captive containing thousands of similarly situated small businesses, the same individual gets access to the same structural advantages — direct claims funding, third-party administration, reinsurance protection, and a regulated plan document — that previously required a workforce of thousands.

Captive group plans are the structural adaptation that makes self-funded health coverage available to the self-employed. They are not the only adaptation, but they are the most direct: the funding model, administrative structure, and regulatory framework are all built on the same architecture as traditional employer self-funded plans.

How Solo Health Collective Operates as a Self-Funded Health Plan

Solo Health Collective is a self-funded health plan structured as a captive group plan, built specifically for self-employed business owners with an active federal EIN.

The structure layers as follows: The member’s business establishes its own self-funded plan as the primary funding vehicle up to the plan deductible. Above the deductible, Vault Health Captive – Series C funds claims through a Medical Deductible Reimbursement Policy. Above the captive layer, Odyssey Re — an A+ rated reinsurer — funds catastrophic claims with no specific or aggregate paid claim limit, meaning there is no coverage cap. Vault Admin Services handles claims processing and plan administration. The Multiplan PHCS PPO network — one of the largest in the country, with 1.4 million+ providers across all 50 states — gives members access to in-network care without referrals.

The captive is regulated by the North Carolina Department of Insurance. Eligibility requires an active EIN — sole proprietor, independent contractor, LLC, and S-Corp structures all qualify. EIN is the eligibility identifier; SSN is collected for identity verification during enrollment. Members must complete and pass a health questionnaire. Final eligibility is subject to questionnaire approval.

Solo offers three plan designs by deductible amount: a $2,500 deductible plan, a $5,000 deductible plan, and a $10,000 deductible plan. The $2,500 and $5,000 deductible plans use a high-deductible structure that is generally compatible with a Health Savings Account — confirm HSA eligibility with your HSA provider and tax advisor. On all three plans, the deductible equals the out-of-pocket maximum, meaning once the deductible is met, covered medical services are paid at 100% for the rest of the plan year (pharmacy transitions to copay tiers). Enrollment is year-round with no open enrollment window.

For a deeper structural breakdown, see our Captive Health Group Plan explainer. For full eligibility details, see eligibility and enrollment for solopreneurs.

Ready to see what a self-funded health plan looks like for your business? Calculate your cost at hbgsolo.com

Advantages and Trade-Offs of Self-Funded Coverage

Self-funded health plans offer real structural advantages, but they come with trade-offs that the plan sponsor — whether a Fortune 500 employer or a captive serving small businesses — must understand.

Advantages. Self-funded plans typically eliminate the carrier risk premium and profit margin built into fully-insured premiums, which can translate into cost saving opportunities for the sponsor and members. Plan design flexibility is substantially greater, allowing the sponsor to tailor the benefits package, network, and pharmacy benefit structure to actual member needs rather than accepting an off-the-shelf carrier plan. Claims data is available to the sponsor, enabling better cost management decisions over time. Reinsurance protects against catastrophic exposure. And the plan sponsor — not a carrier — controls how covered benefits evolve.

Trade-offs. Self-funded plans carry more cost variability than fully-insured plans, particularly at smaller scale. The sponsor must maintain adequate funding reserves and contract appropriately for stop loss coverage. Plan administration requires specialized expertise — most plans rely on a third-party administrator rather than handling administrative services internally. And regulatory compliance is more complex: federal law (ERISA) governs employer-sponsored self-funded plans and state insurance laws govern captive structures.

For traditional large employers, the advantages typically outweigh the trade-offs at scale, which is why self-funding dominates the large-employer market. For self-employed business owners considering a captive group plan like Solo, the captive structure absorbs most of the operational complexity — claims funding, administration, reinsurance, and regulatory compliance are handled at the captive level rather than by the individual member.

Self-employed business owners considering Solo should also evaluate alternatives. See  ACA Marketplace for the Self-Employed for a comparison to subsidized and unsubsidized marketplace plans, COBRA vs. Self-Employed Health Insurance for continuation coverage analysis, and [INTERNAL Single-Member LLC Group Health Insurance — in production] for an LLC-specific coverage breakdown. Monthly contributions paid by self-employed business owners may be generally tax deductible as a business expense under the IRS self-employed health insurance deduction rules — confirm with your tax advisor.

The Bottom Line

Self-funded health plans are not an alternative coverage workaround. They are the dominant health benefits model used by the largest employers in the United States — a regulated, widely-adopted, and financially sound coverage structure that has covered the majority of insured American workers for decades.

What’s new is access. The structural adaptation through captive group plans has made the same funding model — direct claims payment, third-party administration, regulated stop loss reinsurance — available to small businesses and self-employed business owners who were previously locked out of self-funded coverage. Solo Health Collective operates on this adapted model, with NC DOI regulatory oversight, A+ rated reinsurance, and a nationwide PPO network.

If you operate a business with an active EIN and you’ve been frustrated with ACA marketplace premiums or healthshare uncertainty, a captive group plan structured as a self-funded health plan may offer a different path. Calculate your cost at hbgsolo.com.

This article is for educational purposes only and does not constitute legal, tax, or medical advice. Solo Health Collective is a self-funded health plan, not insurance. Coverage is provided through Vault Health Captive – Series C, regulated by the NC Dept of Insurance and reinsured by Odyssey Re. Coverage availability is subject to health questionnaire approval. Consult a qualified tax or legal professional.