Fully-insured vs. self-insured health plans

By Holly Bengfort on August 3, 2026 at 10:15 AM

As healthcare costs continue to rise, employers need health benefits that balance quality coverage with predictable costs. Traditionally, businesses have chosen between fully-insured and self-insured group health plans. Today, many are also considering health reimbursement arrangements (HRAs), which offer another way to provide health benefits while keeping costs under control.

In this article, we'll compare fully-insured and self-insured health plans, and explain how HRAs offer another approach to funding employee benefits.

In this blog post, you'll learn:

The differences between fully-insured and self-insured health plans.

The advantages and risks of each health plan funding approach.

How HRAs provide a flexible alternative for employers.

What is a fully-insured health plan?

A fully-insured health plan is the traditional route of insuring employees. Employers pay a fixed premium to a group health insurance carrier. Then, the carrier assumes responsibility for paying covered medical claims for enrolled employees. The carrier also absorbs the risk and any losses for covering your employees.

Fully-insured health plans often cost more over time because insurance carriers include administrative costs and claims risk in their premiums¹. However, they offer predictable monthly costs and can help employers attract and retain employees.

The main drawbacks are:

Annual premium increases based on employee risk (experience-based pricing)
Limited flexibility to customize the plan
Negotiating renewals with the health insurance carrier

With a fully-insured plan, premium rates are generally fixed for the policy year. But your premium obligations may change if employee enrollment changes.

The insurance company pays medical claims based on the benefit outline. Employees pay any deductibles or copays required for covered healthcare services under the policy.

What is a self-insured health plan?

With a self-insured, or self-funded plan, you pay for your employees' healthcare claims instead of purchasing a traditional insurance policy. Because you fund the plan yourself, you have more flexibility than with a fully-insured plan. This allows you to design a health benefit that better meets your employees' needs.

You can also pay a traditional insurance carrier or administrator to manage the self-funded group plan for you. This is sometimes known as an administrative services only arrangement.

Some employers also choose level-funded plans. Level-funded plans combine features² of fully-insured and self-insured coverage. They come with fixed monthly payments and the potential for cost savings if claims are lower than expected.

With a self-insured health plan, employers are responsible for funding healthcare costs and planning for expenses such as:

Administrative fees
Third-party administrator (TPA) fees
Stop-loss insurance premiums
Employee medical costs
Other plan administration costs

Employee claims costs can vary significantly from month to month, so employers must prepare for both expected and unexpected healthcare expenses.

The main drawbacks of self-funded health plans include:

Unpredictable healthcare costs
Greater administrative complexity
Financial exposure to high-cost claims

To help manage this financial risk, many employers purchase stop-loss insurance. Stop-loss coverage reimburses employers for eligible claims that exceed a predetermined dollar amount. However, stop-loss policies can laser high-risk employees, excluding named individuals from coverage and leaving employers on the hook for their medical claims. Employers should review their stop-loss contract terms before selecting a policy.

Fully-insured vs. self-insured health plans at a glance

Choosing between a fully-insured and self-insured health plan depends on your organization's budget, risk tolerance, and benefits strategy. The table below compares the two options side by side.

Feature	Fully-insured health plan	Self-insured health plan
Who pays medical claim expenses	The insurance carrier	The employer
Monthly costs	Predictable premiums throughout the policy year	Variable based on employee healthcare claims and administrative costs
Financial risk	Primarily assumed by the insurance carrier	Assumed by the employer (often with stop-loss insurance)
Administrative responsibility	Minimal	Greater, often with help from a TPA
Plan flexibility	Limited to the carrier's plan offerings	Highly customizable
Best suited for	Employers seeking predictable costs and lower administrative burden	Employers looking for greater flexibility and potential savings, but who have the capital to handle unexpected medical claims

How stand-alone HRAs provide the benefits of a self-insured plan without the headache

If you want greater flexibility and budget control without taking on the financial risk of paying monthly claims costs, an HRA may be a better fit.

HRAs are employer-funded health benefits. They allow employers to reimburse employees tax-free³ for eligible medical expenses and, depending on the type of HRA, individual premiums.

Unlike traditional self-insured health plans, employers set a fixed monthly allowance and never reimburse employees beyond that amount.

Once you've established an HRA and set each employee's monthly allowance, employees can enroll in qualifying coverage and begin submitting eligible expenses for reimbursement.

To get reimbursed, employees submit proof of an eligible expense, typically in the form of a receipt. Once the employer approves the expense, they reimburse it up to the employee’s available allowance amount.

There are several types of HRAs available, each designed to meet different employer needs.

The three most common options are the:

Let's review each HRA in more detail below.

Individual coverage HRA (ICHRA)

An ICHRA is for employers of all sizes. Instead of offering a traditional group health insurance plan, employers provide a fixed monthly allowance. Employees use this allowance to buy the individual health coverage that best meets their needs. Employees need their own qualified individual health plans to participate in an ICHRA. Family coverage through a spouse's or parent's group health plan doesn't qualify.

One of ICHRA's biggest advantages is its flexibility. With the ICHRA, there are no annual limits on employer contributions. This allows employers to set reimbursement amounts that fit their budget.

Employers can also offer the benefit to specific groups of employees using IRS-approved employee classes, such as full-time or part-time employees. Allowance amounts can also vary by an employee's age and family size.

Qualified small employer HRA (QSEHRA)

For small employers with fewer than 50 full-time equivalent employees (FTEs), a QSEHRA offers a way to reimburse employees tax-free for monthly premiums and other eligible medical expenses.

Unlike an ICHRA, a QSEHRA is subject to annual IRS contribution limits. Employers must generally offer the benefit on the same terms to all eligible employees, although reimbursement amounts may vary based on age and family size. You also can't offer a QSEHRA alongside a traditional group health plan or group ancillary coverage.

For eligible small employers, a QSEHRA offers a simple, budget-friendly way to provide a tax-advantaged health benefit without the cost and complexity of sponsoring group health insurance.

Group coverage HRA

A GCHRA, also known as an integrated HRA, is for employers that already offer a traditional group health insurance plan. It allows employers to supplement their group coverage by reimbursing employees tax-free for eligible out-of-pocket medical expenses, such as deductibles, copays, and coinsurance.

Unlike an ICHRA or QSEHRA, you must offer a GCHRA alongside a group health plan. But you can't use a GCHRA to reimburse health insurance premiums. Employers choose which eligible expenses they'll reimburse and set a monthly allowance, giving them greater control over their healthcare spending while helping employees reduce their out-of-pocket costs.

A GCHRA is a good option for employers that want to enhance an existing group health plan without increasing the plan's premiums or expanding coverage.

Conclusion

Fully-insured and self-insured health plans each have advantages depending on your organization's budget, goals, and risk tolerance. For employers looking for greater cost control and flexibility, HRAs offer a compelling alternative to traditional group health insurance.

Ready to offer an HRA as part of your employee benefits package? Schedule a call with one of our HRA specialists to see which one is the right fit for your business!

This article was originally published on October 15, 2021. It was last updated on August 3, 2026.

Frequently asked questions

Yes, but self-insured plans require employers to take on the financial risk of paying employee healthcare claims. Many small businesses choose alternatives, like the ICHRA or QSEHRA, to offer benefits with more predictable costs.

With a self-insured plan, employers pay employee healthcare claims directly. With an HRA, employers set a fixed monthly allowance for eligible expenses, creating predictable costs without taking on claims risk.

It depends on your company's size, budget, and risk tolerance. Fully-insured plans offer simplicity, self-insured plans offer flexibility, and HRAs offer predictable employer costs while allowing employees to choose their own individual health insurance coverage.