In the wake of the upcoming (though slightly delayed) employer shared responsibility (or “play or pay”) requirements of the Patient Protection and Affordable Care Act, there's been increased interest in self-funded health plans, particularly among those employers who will be subject to the requirement. The benefits community will likely face many questions from current and potential customers about self-funding options and this overview will briefly touch on the basics of self-funded plans, the pay or play requirements, and a few reasons that PPACA may have caused increased interest in self-funding. 

In short, self-funding is the absence of health insurance provided by a third party. Self-funded health plans operate by paying claims from the plan sponsor's general assets, usually combined or offset by participant contributions, instead of purchasing insurance through an insurance company by paying premiums. In some cases, plan sponsors pay claims from a trust that is funded by plan sponsor contributions and participant contributions. Self-funding also is called “self-insurance,” which indicates the plan sponsor's assumption of the responsibility to pay benefit claims and to accept the risk of those claims exceeding its expectations, thereby self-insuring the risk.

PPACA's play or pay rules require those employers with 50 or more full-time equivalents to provide health coverage under an employer-sponsored plan to all full-time employees, which are those who work an average of 30 hours per week or more. The plan generally must meet certain minimum value requirements and be affordable to the employee. If an employer does not comply with these requirements, it will face stiff penalties. The play or pay mandate was set to be effective Jan. 1, 2014, but it was announced recently by the Treasury Department that it is pushing the mandate's effective date to Jan. 1, 2015.