Definition

• A self-funded health-care plan is managed and funded by the employer, which anticipate a lower cost than paying a third-party insurance company. The employer allocates funds each period to a separate bank account. The company uses the money in this account to pay for employees' health-care claims. The employer bears the risk of higher than average health care claims and reaps the benefits when claims are lower than average.
  
  

Business Checking

• Many companies use a business checking account for health-care claims. These accounts often require the company to maintain a minimum balance and charge a service fee.
  
  

Business Savings

• Some companies use a business savings account. These accounts limit access to the funds, reducing the risk of using the funds for non-health-care reasons. These companies review and add the claims throughout the month. At the end of the period, the company transfers funds from this account into the company's primary checking account. The company pays claims from the primary checking account. The company receives interest income based on the balance maintained in the savings account.
  
  

Money Market Accounts

• Money market accounts combine the convenience of a business checking account with the interest-earning feature of a savings account. The company that chooses to use a money market account enjoys the ability to issue checks directly from the account for health-care claims. The money invested also grows as a result of the interest earned on the account.