When your team stays healthy, the savings should be yours — not the carrier's.
In a fully insured plan, a good claims year makes your insurance company richer. Self-funding flips that: money you don't spend on claims comes back to you. Here's how it works, what underwriters look at, and a calculator to see the upside for your group.
The same year, two funding models
Illustrative. A better-than-expected claims year returns up to $174,000 to the employer — money a fully insured carrier would have kept.
This guide explains, in plain English, how self-funded (self-insured) group health insurance works, why a good claims year can put real money back in your budget, what underwriters weigh when they project your claims, and how the "corridor" protects you on the downside. Use the interactive calculator to see how the numbers move for a group your size.
Fully insured vs. self-funded: who keeps the surplus?
With a traditional fully insured plan, you pay a fixed premium to a carrier. The carrier takes on the claims risk, and in exchange it keeps whatever it doesn't pay out. If your employees have a healthy year and claims come in well under what the carrier projected, that surplus becomes the carrier's profit. You never see it. Your reward for a good year is, at best, a slightly gentler renewal.
With a self-funded plan, the employer pays for its own employees' claims directly, up to a defined limit, and buys stop-loss insurance to cap the risk. The critical difference: when claims come in below expectations, the leftover money stays with you — either as a lower actual spend or as a surplus refund at year-end. You've stopped renting coverage and started financing it.
Self-funding doesn't ask you to take on unlimited risk. It asks you to keep the reward when your own people have a healthy year.
The three pieces of a self-funded plan
A well-built self-funded arrangement has a fixed part and a variable part. The fixed part behaves a lot like premium — you pay it no matter what. The variable part is where the savings live.
1. Stop-loss insurance
Two layers protect you. Specific stop-loss caps what you pay for any one person (e.g., no more than a $50,000 "specific deductible" per member). Aggregate stop-loss caps the total the whole group can cost you for the year.
2. Administration & compliance
A third-party administrator (TPA) or carrier network processes claims, and the plan handles ACA, ERISA and 5500 reporting. Predictable, and usually a small slice of the total.
3. The claims fund
The pool that actually pays members' day-to-day claims. It's funded to an expected level plus a cushion. Spend less than you funded, and the difference is yours.
The pitch in one sentence: your maximum cost in a self-funded plan is engineered to land near what a fully insured premium would have cost — but your likely cost is lower, and your best-case cost is lower still.
Where the technology comes in
Self-funding creates more moving parts — enrollment, funding, compliance filings, carrier and TPA data. We run eligible client groups on the Employee Navigator benefits & HR platform at no cost to you (Waugh absorbs the subscription). It brings AI-assisted plan building, 600+ carrier, payroll and TPA integrations, automated compliance tracking, and streamlined online enrollment — the administrative backbone that makes self-funding practical even for a fast-growing startup without a big HR team. Ask us to walk you through it.
The "corridor," explained like a human being
The corridor is the single most reassuring idea in self-funding, and it's usually explained the worst. Here it is plainly.
Your underwriter estimates your expected claims for the year — a best guess at what your group will actually spend. Nobody funds only to the expected number, because real life runs hot or cold month to month. So the plan is funded a bit above expected. That extra layer of cushion — the gap between your expected claims and the maximum you could be on the hook for — is the corridor. The top of the corridor is the aggregate attachment point: the ceiling where your aggregate stop-loss insurance takes over and starts paying.
Think of the claims fund as a gas tank. Expected claims is the trip your underwriter thinks you'll take. The corridor is the extra range you fill up "just in case." If the trip is shorter than expected, you finish with fuel in the tank — that's your surplus. If the trip runs long, the corridor covers the overage; and if it runs way long, aggregate stop-loss tows you the rest of the way. You never walk.
How a good year turns into cash back
How different corridors work in practice
Corridors are commonly described as a percentage above expected claims. The aggregate attachment point — your true worst case on claims — usually lands somewhere around 120% to 125% of expected, though it can run from about 110% up toward 150% depending on group size and how much volatility the carrier sees.
- A tighter corridor (e.g., 110%–115%) means the plan is funded closer to expected. Your monthly funding is lower, but there's less room before aggregate stop-loss is triggered — more likely to bump the ceiling in a bad month.
- A wider corridor (e.g., 125%–150%) funds more cushion up front. Monthly cost is a touch higher, but bad stretches are absorbed inside your own fund, and a good year returns a larger surplus.
- The trade-off: a wider corridor is "safer" and often refunds more, but it also parks more of your cash in the fund during the year. The right corridor depends on your cash flow and your appetite for month-to-month variability.
Small and mid-sized groups often reach the best of both worlds through a group medical captive or a self-funded consortium, where many employers pool their corridors together. More on that below — but first, see the effect for yourself.
Self-funded savings illustrator
Enter your expected annual premium, then drag the claims dial. Watch how a better-than-expected year returns money to your group — and how the corridor and stop-loss cap protect you if claims run high.
Advanced assumptions
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What underwriters actually look at
The savings above hinge on one number: your expected claims. That figure isn't a guess pulled from the air — it's the output of medical underwriting. Understanding the inputs helps you see why two companies of the same size get very different quotes, and where a good advisor can move the needle.
- Age and gender mix. The biggest single driver. Claims rise steeply with age — a 60-year-old generates several times the claims of a 25-year-old — so an older workforce projects higher expected claims and higher stop-loss pricing.
- Group size. More covered lives means more statistical credibility, steadier month-to-month claims, and typically higher specific deductibles. A 40-life group might carry a $25,000–$30,000 specific; a 300-life group might sit at $150,000 or more.
- Industry and occupation. Carriers classify by industry. A tech or professional-services firm underwrites differently than a manufacturer or a trucking company with more physical-risk exposure.
- Geography. Cost of care varies widely by region and even by ZIP code — the same procedure is priced differently in Boston, New York City, or rural New Hampshire.
- Plan design. Deductibles, copays, coinsurance and network shape utilization. A higher-deductible plan generally lowers projected claims because members share more of the first-dollar cost.
- Prior claims & known conditions. For groups with credible history, underwriters review claims experience and large-claimant data. An individual with a known high-cost condition may be "lasered" — assigned a higher specific deductible — though captives and consortiums often limit or prohibit new lasers.
- Medical trend. A forward-looking inflation factor (commonly high-single-digits) is layered on top to project next year's costs from last year's data.
Put together, these produce expected claims, the specific and aggregate stop-loss premiums, and the attachment point that sits at the top of your corridor. Get a plan analysis and we'll show you which of these levers are working for or against your group.
Going it alone, or pooling: three ways to self-fund
Historically, self-funding was reserved for large employers who could absorb a bad claims month on their own. That's still an option — and for the right group it's the most transparent one — but two pooled structures have opened the door to employers as small as 25–50 employees. The difference between them comes down to whose money is at risk, and whose surplus you keep.
Self-funding a single group on its own
A larger, stable employer can simply self-fund by itself: set up its own claims fund, buy specific and aggregate stop-loss, and keep 100% of any surplus. The upside is total transparency and control — you see your own claims data and answer to no pool. The trade-off is that all of the month-to-month volatility, and the full cost of a bad stretch up to your stop-loss cap, sits with your company alone. It works best when headcount is large enough that claims are statistically steady from month to month.
Group medical captives
In a group medical captive, many employers jointly own an insurance entity that shares a layer of stop-loss risk. Each employer still self-funds its own claims fund, but the pooled layer smooths out volatility so one company's terrible year doesn't blow up its renewal. Unused premium in the shared layer is typically returned to members over time. The appeal is Fortune-500-style risk protection with small-group accessibility — at the cost of sharing a risk layer with other employers and committing to the pool's cost-containment rules.
Self-funded consortiums
A self-funded consortium is a distinct model where employers share a risk pool but each group's surplus stays with that group — no group subsidizes another. Consortiums often emphasize defined up-front cost exposure, capped liability, rate caps at renewal, limits on new lasers, and surplus returned to the individual employer. Different structure from a captive, same core promise: keep control, cap the downside, and keep your own good-year savings.
Solo, captive, consortium, or level-funded — which fits?
Level-funded plans offer the gentlest on-ramp (a fixed monthly payment with a potential year-end refund); self-funding solo offers the deepest transparency; captives and consortiums sit in between, trading a shared risk layer for stability. The right answer depends on your size, cash flow, risk appetite and how much administrative lift you want to own. We're structure-agnostic — our job is to model the options against your actual census and tell you plainly which one wins. Schedule a free benefits review.
Is self-funding right for your group?
Self-funding tends to shine when a group is reasonably healthy, values transparency into its own claims data, and can handle some month-to-month cash-flow variability in exchange for keeping the upside. It's less obvious for very small or very high-risk groups, where a fully insured or level-funded plan may price better after underwriting. The only way to know is to run your real numbers — census, plan design, and stop-loss quotes — side by side against your current fully insured renewal.
That's exactly the analysis we do. We're group health and health-reform compliance specialists based in Andover, Massachusetts, serving employers across Boston, New York City and the Northeast — and, through trusted affiliates, in all 50 states. We'll model fully insured, level-funded, captive and consortium options, run the compliance, and put the whole plan on Employee Navigator so it actually runs. Explore related coverage in our group & self-funded plans, self-employed health, individual & family, group life, and Medicare pages, or try our free Small Business ACA Tax Credit Calculator.
© 2026 Waugh Agency, LLC · waughagency.comLet's find out what a good year is worth to you.
Send us your census and your current renewal. We'll model fully insured against self-funded, captive and consortium options — and show you, in dollars, what your group keeps when claims come in low. Where fully insured is the better deal, we'll say so.