Self-Funded vs. Group Health Insurance: What’s Best for Small Businesses?

If you're a business owner with 5–50 employees, you’ve probably felt the squeeze of rising health insurance costs. Maybe your broker handed you another double-digit renewal, and you’re wondering if there’s a smarter way to offer benefits.

You’re not alone.

Let’s break down the difference between traditional group health plans and self-funded health insurance, so you can see what actually fits your team and budget.

🚑 What Is Group Health Insurance?

This is the default option. You buy a plan from a major carrier, pick a few tiers (silver, gold, etc.), and everyone on your team gets shoved into one of them.

• Predictable monthly premium

• Limited flexibility

• Carrier keeps the profits (even when claims are low)

For very small teams or those with complex medical needs, group coverage can still make sense—but it’s not the only option anymore.

🧠 What Is Self-Funded Health Insurance?

This flips the script.

Instead of paying a bloated premium, you:

• Pay claims as they happen (up to a cap)

• Buy stop-loss insurance to limit your risk

• Keep the money if your team stays healthy

• It’s like saying, “We’ll bet on our people not getting wrecked with claims—and back it with a safety net.”

🧮 Pros and Cons

Self-Funded Pros:

• Lower premiums

• Total transparency into claims

• Flexibility in plan design

• You keep the savings if claims are low

Self-Funded Cons:

• Risk exposure (mitigated with stop-loss)

• Slightly more admin (usually handled by a TPA)

Group Plan Pros:

• Predictable monthly cost

• Simpler setup

• Everyone knows the brand names

Group Plan Cons:

• Higher cost, less transparency

• Rate hikes are automatic—even if you had low claims

🧭 So What’s Best for Your Business?

If you’ve got a healthy team, want to control costs, and are tired of donating to Blue Cross’s yacht fund, self-funding might be your edge. Especially if you're in that 10–50 employee sweet spot.

📞 Want to Compare Side-by-Side?

We’ll run the numbers, show you how self-funding stacks up against your current plan, and tell you straight if it’s not a fit.

👉 Book a Call