Employer-sponsored health coverage generally falls into one of two categories: fully-insured or self-insured (also called self-funded). Determining the plan type is important for understanding how benefits are regulated and claims are processed. The operational structure significantly impacts your legal rights as a beneficiary, particularly concerning appeals and consumer protections.
Defining the Two Types of Health Plans
The fundamental difference between fully-insured and self-insured plans lies in who assumes the financial risk for paying medical claims. In a fully-insured arrangement, the employer pays a set monthly premium to an insurance company. The insurance carrier assumes all financial liability for employee medical claims, and the employer’s cost is fixed regardless of how many claims are filed.
Self-insured plans operate differently, with the employer paying for employee medical claims directly out of company assets. The employer assumes the financial risk, bearing the additional cost if claims are unexpectedly high. Many self-insured employers purchase “stop-loss” coverage, which protects the company against catastrophic claims. This arrangement limits the employer’s liability while the company remains the primary payer for most claims.
Why Plan Status Impacts Your Rights
The status of your health plan determines the regulatory framework under which it operates, directly affecting your rights as a beneficiary. Fully-insured plans are regulated at the state level, complying with state insurance laws, consumer protection mandates, and required benefit standards. State insurance departments provide an avenue for appealing coverage denials.
Self-insured plans, conversely, are primarily governed by the federal Employee Retirement Income Security Act of 1974 (ERISA). ERISA establishes minimum standards for most voluntarily established health plans in private industry. The law includes a broad preemption clause, meaning ERISA generally overrides state laws related to employee benefit plans.
This preemption is the most significant consequence for a participant. If a plan is self-insured, it is shielded from state-level mandates, such as requirements for fertility treatment or mental health parity laws. Recourse for a denied claim under an ERISA-governed plan is generally limited to the plan’s internal appeals process and ultimately, federal court.
How to Determine Your Company’s Plan Status
Determining the funding status of your health plan involves reviewing specific documents. The most reliable method is to consult the official plan documents, which are legally required to disclose the funding mechanism. These sources definitively confirm whether your employer is bearing the financial risk.
Check the Summary Plan Description (SPD)
The Summary Plan Description (SPD) is a document required by ERISA for all covered plans. It serves as the primary source of information for participants and must explicitly state whether the plan is fully-insured or self-funded. The SPD provides a clear overview of the plan’s provisions, rights, and responsibilities, making it the most straightforward evidence of the plan’s operational structure.
Look for Form 5500 Filings
Large self-insured plans are required to file an annual financial report, Form 5500, with the Department of Labor (DOL). These public records detail the plan’s assets, funding, and operations. They can be searched online through the DOL website or third-party search engines. Finding a Form 5500 filing strongly indicates the plan is self-insured, as fully-insured plans often have simplified or waived filing requirements.
Review Your Insurance Card and Explanations of Benefits (EOBs)
Reviewing your physical insurance card can provide an indicator, even if it features a major national carrier logo. Some self-insured plans include a second line of text on the card mentioning the employer’s name or a specific trust fund alongside the carrier’s brand. Additionally, the Explanations of Benefits (EOBs) you receive may list the entity responsible for payment. If the EOB shows the employer’s name as the “Payer” or “Plan Sponsor” instead of the insurance company, it suggests a self-funded arrangement.
Ask Your Human Resources Department
The Human Resources or Benefits department should be able to answer questions about the plan’s funding status directly. They manage the plan’s administration and contracts. While this is an easy first step, the information should be verified by reviewing official documentation, such as the SPD.
Note the Presence or Absence of State-Mandated Benefits
The presence or absence of specific benefits required by state law serves as a powerful indirect indicator. Many states mandate coverage for services like autism treatment or certain fertility procedures. If your plan operates in a state with such a mandate but explicitly excludes that coverage, it strongly signals that the plan is self-insured. This indicates the plan is relying on ERISA preemption to avoid compliance with the state requirement.
The Confusion Around Third-Party Administrators (TPAs)
A significant source of confusion for employees is the common use of major national insurance carriers as Third-Party Administrators (TPAs). When an employee sees a familiar logo like Aetna, Cigna, or Blue Cross Blue Shield on their insurance card, they often assume the plan is fully-insured. In a self-insured arrangement, however, the major carrier is only contracted to provide administrative services.
The TPA handles operational tasks, such as processing claims, providing network access, and issuing ID cards. This function is entirely separate from the financial risk. The employer remains the true underwriter, maintaining the financial liability. The company is the entity that ultimately pays the claim from its own funds.