What characterizes self-funded plans in health insurance?

Self-funded plans in health insurance are characterized by employers assuming the financial risk of providing health care benefits to their employees. In these plans, the employer uses its own assets to pay for employee medical claims directly rather than purchasing an insurance policy from a traditional insurance provider. This means that the employer is responsible for a portion of the health costs and retains control over the plan design and funding.

The self-funded approach allows employers to potentially save on insurance premiums, as they do not pay a third party to assume risk, and it can offer a more flexible benefits structure. Additionally, employers may choose to work with third-party administrators to manage claims and services, but the financial responsibility remains with them.

In contrast, traditional insurance arrangements typically involve the insurer taking on the risk and paying claims using collected premiums from policyholders, which is not the case here. Thus, this distinction highlights why the focus is on the employer's financial responsibility in self-funded health insurance plans.