What is “insurance” versus “self-funding”?
The courts & states constantly bounce all around this issue, with differing answers based on slightly differing facts & circumstances. Here’s the rule of thumb based on the major U.S. Supreme Court cases: If there is a direct relationship between an individual plan participant and an insurance company (such as the insurer paying claims in the name of John Doe), then it is “insured”. If the sponsoring employer is ultimately responsible (though the employer or plan may have stop-loss to generally protect the employer’s or plan’s assets), then it is self-funded. There is also the “where the buck stops” test: If an employer can walk away from the bills, and the insurer will cover the costs, then it is insured. If the employer is still technically on the hook (even if he’s only a conduit for stop-loss reimbursements), then it is self-funding. (There are so many hybrids and innovations these days by folks unfamiliar with these distinctions, that this should help you to recognize what’s what.
