In A Comparison of Self-Funded and Insured Health and Welfare Plans, health benefits expert witnessMark Johnson, J.D., Ph.D., ERISA Benefits Consulting, Inc., writes:
Under state law, insurance companies are regulated and are subject to rules governing benefits, network adequacy, prompt payment of claims, etc. Although fully insured plans in the private sector are still covered by ERISA they are also subject to state insurance regulation. While the state cannot tell an employer what the provisions must be in its ERISA plan, it can tell insurance companies what must be in policies they are authorized to sell; in essence back door regulation.
In a self-funded healthcare plan an employer provides health and other welfare benefits to employees with its own funds. For self-funded plans, the financial risk falls on the employer, with employee cost sharing arrangements similar to the insured plan, i.e. deductibles, co-payments and employee monthly contributions (the latter are functionally the same as premiums). The cost of the plan consists of benefits actually paid to health care providers, administrative fees, stop-loss premiums if the employer elects on an aggregate or individual basis to shift financial responsibility to an insurance policy after a trigger is met, and other variable costs.