Most employers provide life, health, and disability coverage through an insurance policy. In a typical insurance arrangement, the insurance company bears the risk for any benefits payable under the insured plan in exchange for premium payments from the employer. In other words, the insurer is responsible for paying claims out of its own assets, regardless of the total amount of premium payments made by the employer.
In contrast, a “self-insured” or “self-funded” plan is one where the employer instead bears the risk itself, setting up a fund of its own contributions from which claims are then paid. Plan documents will usually identify whether a plan is self-funded or not. Just because you are dealing with an insurance company doesn’t mean your plan is insured. Your employer may have hired an insurance company to receive and process claims. In such cases, the insurance company is simply acting as a hired third-party administrator.
You should be aware that self-funded plans occupy a special place in ERISA law. Generally, ERISA exempts such plans from compliance with state insurance law. State law provides substantive and procedural requirements beyond those found in ERISA itself (for example, mandatory minimum levels of benefits for certain types of care in health insurance plans, such as mammograms, or chiropractic services; or, in the case of disability plans, state law may supply the length of time an insurance company can exclude coverage for a pre-existing condition). Consequently, employers with self-funded plans are free to ignore such requirements and may choose to write far less favorable benefits into their plans.