In a self-funded (self-insured) plan, the employer pays employees' medical claims from its own funds instead of buying an insurance policy, so the employer, not an insurer, carries the risk of claims running high. It often hires a third-party administrator (TPA) to process claims, but the TPA provides administrative services only and takes on no claims risk. The employer may buy stop-loss insurance to limit large losses.
ERISA (Employee Retirement Income Security Act) covers employee benefit plans set up by employers or employee organizations engaged in or affecting commerce, whatever their size and whether or not they are nonprofit. Governmental plans, such as a city's plan, are excepted, as are church plans that have not elected coverage.
ERISA preemption in three steps:
ERISA supersedes state laws that relate to employee benefit plans.
Its saving clause keeps state laws that regulate insurance, so an insured plan's policy must still follow California mandates.
Its deemer clause says a plan itself may not be deemed an insurer, so a private self-funded plan is generally outside state insurance law. It is still governed by federal law, including ERISA itself.
Self-insured "association" plans: the CDI outline says self-insured association health plans are prohibited. California requires a self-funded multiple employer welfare arrangement (MEWA) to hold a certificate of compliance, and the application had to be filed by November 30, 1995 (§742.24(h)). New self-funded MEWAs have been prohibited since that date, so a trade association formed today cannot start one.