Is self funding right for 50 to 500 employees?

Cash flow against a fixed premium

Fully insured is a fixed employer cost for the policy year, aside from enrollment changes. The insurer pays the claims. The renewal is where the number moves.

Level funded looks like that on the bill. You pay a fixed monthly amount built for expected claims, administration, and stop-loss. If claims come in under the funded amount, any surplus or refund follows the contract, and it is not guaranteed. The side-by-side is on level funded vs fully insured.

Self funded is the variable one. The plan pays claims as they are processed, usually each week. A quiet month leaves cash in the company. A month with a hospital stay or a specialty drug takes it, up to the stop-loss attachment point. Stop-loss premium and the administrator’s fee are the fixed pieces. Reimbursement from stop-loss often arrives after the company has already funded the claim, so the cash has to be there first.

KFF’s 2026 Employer Health Benefits Survey is the public context, not a target for your group. It found 25% of covered workers at firms with 10 to 199 workers in self-funded plans, and 85% at firms with 200 or more. Another 38% of covered workers at the smaller firms were in level-funded plans. The 200-or-more figure includes companies far larger than 500. Use it as the shape of the market, then test your own cash.

How the headcount bands behave

The public surveys do not publish a split at 50, 100, and 250. The work still changes at those lines, because filing rules and one large claimant do.

Stop-loss attachment points

Specific stop-loss caps the plan’s cost for one person during the contract period. Aggregate stop-loss caps total claims for the period, at a point set above expected claims. The percentage over expected claims is whatever the policy says. It is not a statute.

A lower specific deductible means less cash shock and, usually, a higher stop-loss premium. A higher one does the opposite. Ask what the most the company could fund is: fixed costs plus claims up to the aggregate attachment, with timing for when a large claim is reimbursed.

Lasers, contract basis, and run-out are the terms that change the answer. They are on stop-loss basics.

IBNR and the run-out reserve

IBNR means incurred but not reported. The care has already happened. The claim is not in the file yet. Add the claims that are in the file and not yet paid. On a self-funded plan that total is the company’s obligation, so the balance sheet usually carries it as an accrued liability rather than waiting for an invoice in a later month.

Run-out is the tail. Claims incurred inside the contract year, or before you leave, get paid after that date. A run-out reserve is the balance sheet amount for that tail. Terminal or run-out stop-loss responds only if the policy’s contract basis includes those later payments. If it does not, the tail stays with the company.

The estimate and the account belong with your accountant. This page does not set the journal entry. It tells you the liability exists before you compare self funding with a fixed premium.

Form 5500, and when a trust changes it

An unfunded or insured ERISA welfare plan generally files Form 5500 when it had 100 or more participants at the beginning of the plan year. 29 CFR 2520.104-20 is the exemption for certain smaller plans under that count.

If plan assets are held in a trust, that small-plan exemption does not apply. The filing rules are separate, and a funded welfare plan can have to file even with fewer than 100 participants. A plan that pays claims from the employer’s general assets is the usual “unfunded” case. Employee contributions left in a separate account can become plan assets. That is a reason to ask counsel and the administrator how the account is held, not a reason to guess from headcount alone.

If a plan already filed Form 5500 for the prior year and has between 80 and 120 participants at the beginning of the plan year, it may elect to complete the return in the same large-plan or small-plan category as that prior filing. That election is about how the Form 5500 is completed, not the 29 CFR 2520.104-20 exemption, and it does not let a previously exempt plan stay off Form 5500 once it reaches 100 participants. How to find the filing is on Form 5500 search. The filing threshold is not the state large-group line and not the IRS 50-employee test.

State benefit mandates and state stop-loss rules

ERISA section 514 preempts state laws that relate to an employee benefit plan. A self-funded ERISA plan is generally not an insurance policy, so state benefit mandates that apply to insured health plans generally do not apply to the self-funded plan itself.

The stop-loss contract is insurance. The savings clause in section 514 leaves state insurance regulation in place for that policy. States can set who may buy stop-loss and how low the specific and aggregate attachment points may sit, especially for smaller groups. If the state’s floor is high, the company keeps most of the claims volatility and still pays for stop-loss. Read the stop-loss rules in the state where the policy is issued before anyone describes self funding as a way around a mandate.

When staying insured is the better call

Stay fully insured or level funded when any of these are true:

• A bad claims month would have to be funded before stop-loss reimburses it, and that cash is not available.
• The group is 50 to 99 employees and one known claimant would set the year.
• Nobody on the finance team will read a monthly lag report.
• State stop-loss rules push the attachment so high that the company holds the risk a fixed premium would have transferred.
• A possible surplus is worth less to the company than a number that does not move until renewal.

Level funded is the middle path: a fixed monthly amount, stop-loss underneath, and surplus terms you have to read. It is not self funding with the volatility removed. The contract still decides the refund, the laser, and the run-out.

What gets modeled before a plan goes through

The work is seven steps for employers with 50 to 500 employees. For employers with 100 or more employees, steps 2 to 7 are the Renewal Control Plan. That plan models fully insured, level funded, and self funded on the same census before a plan goes through. Employers with 50 to 99 employees get the same seven steps without that name. Self funded is a standard option shopped every renewal. Running a self-funded structure once it is in place is a special project priced in the engagement letter before that letter goes through.

The funding hub is level funded vs fully insured. Who pays the claims and holds the file, if you do move, is how to choose a TPA.

Pay is carrier commission, often set in the rates the carrier files with the state. Every dollar paid on the contract is disclosed in writing, in dollars and per employee, before the plan goes through, for the current plan and every option quoted. Call (808) 358-1477 or email aloha@mattragudo.com.

Is self funding realistic below 100 employees?

It can be, and it often should not be. KFF’s 2026 survey still groups firms with 10 to 199 workers together, and only 25% of covered workers in that band were in self-funded plans. Level funded was more common there. Below 100 people, one claimant can move the year, and Form 5500 often does not apply yet. Cash has to be able to fund a bad month.

What is the difference between specific and aggregate stop-loss?

Specific stop-loss caps what the plan pays for one person in the contract period. Aggregate stop-loss caps the plan’s total claims for that period, at an attachment point set above expected claims. Both are contract terms. The longer explanation is on stop-loss basics.

Where do unpaid claims sit on the balance sheet?

On a self-funded plan, claims already incurred and not yet paid are the company’s obligation. That includes claims not yet reported, often called IBNR, and claims in the file that have not been funded. The balance sheet usually shows an accrued liability. A run-out reserve is the tail after the contract year. Your accountant sets the number.

When does a welfare plan file Form 5500?

An unfunded or insured welfare plan generally files when it had 100 or more participants at the beginning of the plan year. 29 CFR 2520.104-20 is the small-plan exemption under that count. If plan assets are held in a trust, that exemption does not apply, and the filing rules are separate.

Does ERISA wipe out state benefit mandates?

ERISA section 514 generally preempts state laws that relate to an employee benefit plan, so a self-funded plan is usually outside state insurance benefit mandates. The stop-loss policy is still insurance. The state can regulate that policy, including how the attachment points are set. Self funding is not a way around those stop-loss rules.

When is fully insured or level funded the better call?

When the company cannot fund a bad month before stop-loss pays it back, when one claimant would dominate a group of 50 to 99, or when a fixed monthly amount is worth more than a possible surplus. Level funded keeps a fixed bill and still uses stop-loss. The surplus, if any, follows the contract and is not guaranteed.

I built and sold a health insurance agency: grew it to 60 agents in about 3 years, then sold it. Licensed insurance agent since 2014: Texas license 2501238, NPN 17369817.