The case for self-funding: A solution to rising healthcare costs

Business Journals

19-05-2025

Today, about 37% of covered workers are enrolled in fully-insured healthcare plans. But what does that really mean? In a fully-insured health plan, the employer pays a fixed amount – also known as a premium – to an insurance company. In return, the insurance company takes on the responsibility of paying for employees' medical claims. It's like buying a subscription to cover all healthcare costs, except it comes with a hefty price tag and very little control.
In comparison, in a self-funded insurance plan, the employer assumes the financial risk for providing healthcare benefits to its employees. Instead of paying premiums to an insurance company, the employer sets aside funds to cover medical claims.
Fully-insured plans are typically 10%-15% more expensive than self-funded plans, according to OneDigital. That difference adds up fast – and the ripple effect has dire consequences on American families. The average family has just $6,700 in liquid assets. Meanwhile, out-of-pocket maxes often climb past $10,000, leaving many just one medical emergency away from bankruptcy.
Employers are making every effort to control rising costs, but it often feels like an insurmountable challenge. In 2025, they will contribute nearly 12 times more to employee healthcare than they did in 2000. Despite this, many employees still struggle to afford healthcare, without a corresponding improvement in quality.
Families shouldn't have to delay care or risk financial ruin to get the treatment they need. That's not just unfair, it's unacceptable. And it's time we do something about it.
The players in the healthcare cost game
When healthcare costs soar year after year, it's natural to wonder who's responsible. But the reality is more complex than just 'insurance companies' or 'hospitals.' At OneDigital, we've made it our mission to dig into the data and uncover what's going on beneath the surface.
According to a RAND Corp study, employers pay hospitals an average of 254% of the Medicare rate. For perspective, that's approximately 100% more than what half of those hospitals need to break even. These inflated charges don't just bloat costs – they block access. They especially hurt people facing emergency medical needs, when shopping around simply isn't an option.
Worse yet, today's system does not align incentives with employee needs or member outcomes. Most network contracts do little to protect the people actually using the care. Up to 80% of medical bills contain errors, and under these contracts, many carriers pay them without reviewing them. That leaves patients footing the bill for services they never received.
Instead of focusing on getting people healthy, our current model treats symptoms, overprescribes medications, and leans heavily on surgeries and tests. The result? High costs, low value, and poor long-term outcomes.
For employers, this is a wake-up call. If we want to control costs and improve outcomes, we can't just keep shifting expenses around. We need a better strategy – one that reduces costs at the source.
The case for self-funding
Employers can make their benefits an asset and align with their incentives by choosing a self-funded, customizable plan. Many employers fear the only way self-funding works is if they have over 500 employees. But that's not the case at all. Employers just need a willingness to learn and to understand how to manage risk to succeed with this type of health plan. Self-funding also allows employers to implement innovative cost-containment solutions – including reference-based pricing – to reduce overall healthcare costs while maintaining quality for employees.
Some worry that self-funding creates disruption. Yes, there might be a learning curve. Yes, there may be changes. However, I believe the level of disruption is often influenced by how the plan is managed. Teaching someone how to read a new ID card is a small price to pay to ensure that, if they ever face a medical crisis, they won't have to drain their savings or lose their home just to stay alive. And this isn't theoretical, it's personal.
In one year, I had a baby, needed emergency surgery for appendicitis, and was diagnosed with cancer. We paid $15,000 out-of-pocket, which wiped out my and my husband's Health Savings Accounts (HSA). It was a financial punch at a time when we were already overwhelmed. That experience changed how I see health benefits, and why I'm so passionate about helping employers build plans that protect their people.
A smarter strategy starts now
Employers have more power than they realize. When you invest in employee health, you're not just doing the right thing, you're doing the smart thing. Healthy employees are more productive and engaged. They take fewer sick days, perform better, and tend to stick around longer.
At OneDigital, we help employers reimagine what healthcare can look like. We don't offer cookie-cutter solutions. We build customized, data-driven, and people-focused plans designed to meet the unique needs of your workforce.
With our proprietary Impact Studio, we can transform data and technology into actionable insights – helping our clients to build benefits that deliver real impact to their employees and their bottom line. It's time to break away from outdated models, challenge the status quo, and build a better future for our people. Let's start now.
Stop overpaying for healthcare. Contact me at [e-mail] to explore a smarter, self-funded solution that protects your people and your bottom line.
Cassie Schlarb leads the Risk and Underwriting department at OneDigital for the West Region. Her career has been focused on helping clients achieve high level benefits at competitive costs, utilizing innovative strategies on the market and her team is focused on achieving the best financial outcomes for our clients. This team of analysts and underwriters has several decades of experience in both the carrier and broker side and is skilled in providing the necessary insights for OneDigital clients to make the right decisions for their business.