Self-funded or fully insured: how to tell and why it matters

In a self-funded plan, your employer pays claims from its own money and usually hires an insurance company only to process them. In a fully insured plan, your employer buys a policy and the insurer carries the cost. The card can look identical. The difference decides who oversees the plan and how you reach an independent review.

What this means

The Employee Retirement Income Security Act (ERISA) is the federal law that covers most job-based plans. It overrides state laws that relate to employer plans, but it leaves in place state laws that regulate insurance. So a state can regulate the insurer behind a fully insured plan, but generally cannot treat a self-funded plan as an insurer. In practice:

• Fully insured: the state insurance department regulates the insurer and its policy. The plan is also covered by ERISA. A state external review process, where one meets federal standards, is used.
• Self-funded: the United States Department of Labor’s Employee Benefits Security Administration (EBSA) oversees it (help line 1-866-444-3272). Outside review goes through the federal process run by private accredited independent review organizations, unless the state has opened its process to self-funded plans and the plan chooses to use it.
• Government and church employers. Plans run by state, local or federal governments, and church plans that have not elected ERISA, are outside ERISA. A self-funded non-federal government plan answers to the Centers for Medicare & Medicaid Services (CMS). See government and church employer plans.

What to do

1. Look at your card and denial letter. Wording such as “administered by”, or “administrative services only”, points toward self-funded. A mention of a state department of insurance points toward fully insured. This is a clue, not proof. The Texas Department of Insurance gives Texans a card test along the same lines.
2. Ask human resources (your employer’s step to answer). Use these exact words: “Is our health plan self-funded, or fully insured by an insurance company?” The human resources script has the rest.
3. Read the summary plan description (SPD). The SPD must identify any insurance company through which benefits are provided. Where an insurer is involved, it must say “whether and to what extent benefits under the plan are guaranteed under a contract or policy of insurance” and what administrative services (such as paying claims) the insurer provides. It must also describe the claims and appeal procedures and time limits.
4. Ask in writing for the SPD. An ERISA plan administrator must, on written request, furnish the latest SPD and the instruments under which the plan is operated. It may charge a reasonable copying fee of no more than 25 cents per page. Use the request for plan documents. If an administrator fails to mail what ERISA requires within 30 days, a court may, in its discretion, hold the administrator personally liable for up to $110 a day. That penalty is not automatic and applies to ERISA plans only.
5. Optional: search Form 5500. The Department of Labor runs a public search of plans’ annual reports (Form 5500) on its Form 5500 search page. A plan with fewer than 100 participants that is unfunded, insured or both is exempt from filing, so finding nothing does not prove the plan is insured or self-funded. We have not confirmed what the search shows about insurance contracts, so treat it as a supporting clue, not an answer.
6. Write the answer down with the date and who told you.

What the plan may say, and what to say back

“We are just the claims administrator.” That usually means the employer decides how the plan pays. Ask the employer, in writing, whether it can review the denial. See ask your employer to overrule.

“We cannot give you plan documents.” Make a written request to the plan administrator named in the plan documents (usually the employer) and keep proof of when you sent it.

The rule

A self-insured plan is one that “provides benefits other than through health insurance coverage”. A self-funded ERISA plan uses the federal external review process and is not required to use a state’s external review. Source: Code of Federal Regulations (CFR) Title 29, section 2590.715-2719(c)(1)(ii).

Watch for

• State help may not reach you. If your plan is self-funded, a state insurance department generally cannot regulate it, and a complaint goes to the federal government. See who regulates your plan.
• You still have federal rights. A self-funded plan still has to follow the federal claims procedure, including at least 180 days to appeal. If it is not grandfathered, it also has to offer federal external review for qualifying denials.
• Retiree coverage from a former employer. This is a case to check. We could not confirm how it is treated, so ask the plan administrator whether your retiree plan is an employer plan, and then whether it pays claims itself. Use the shorter deadline on your notice until you know.
• Mixed signals. One insurer’s name can sit on both kinds of plan, and both can use the same card design.
• Employers can sometimes help. In a self-funded plan the employer sets the plan terms and may be able to ask the claims administrator to reconsider; see the employer escalation builder.

What next

• See the appeal route for each kind: employer plan appeal path.
• If it is insured, see fully insured employer plans.
• If it is self-funded, see external review for self-funded plans.
• Go to the topic page, find out what kind of coverage you have.