Explain the difference between insurance plans offered by insurance companies and self-funded insurance plans

What will be an ideal response?

Answer: The main difference between insurance plans offered by insurance companies and self-funded insurance plans centers on how benefits provided to policyholders are financed. When companies elect indemnity plans, they establish a contract with an independent insurance company. Insurance companies pay benefits from their financial reserves, which are based on the premiums companies and employees pay to receive insurance. Companies may instead choose to self-fund employee insurance. Such companies pay benefits directly from their own assets, either current cash flow or funds set aside in advance for potential future claims. The decision to self-fund is based on financial considerations. Self-funding makes sense when a company's financial burden of covering employee medical expenses is less than the cost to subscribe to an insurance company for coverage. By not paying premiums in advance to an independent carrier, a company retains these funds for current cash flow.