Employee benefit plans can either be "self-funded" or "insured" (self-funded plans are also sometimes called self-insured or non-insured).
Self-funded Plans
Self-funded plans are funded by a pool of assets (in our case, employer contributions) set aside in a benefit trust fund. The assets are used to administer and pay health and welfare benefits for the trust. The trust, under direction of the board of trustees, designs its own plans and assumes the financial risk associated with the payment of benefits. The trust can choose to administer all or part of the health and welfare benefits, or they may contract with a third party to handle all or part of the benefits administration and payment of claims.
Self-funded plans must comply with certain federal legislation, such as ERISA (the Employee Retirement Income Security Act of 1974, as amended) and the Patient Protection and Affordable Care Act of 2010. Self-funded plans are generally not subject to state laws and state mandated insurance regulations, even if an insurance company has been contracted to handle benefits administration for the plan.
The National IAM Benefit Trust Fund plans are self-funded. Unlike a "for-profit" plan or an insurance company, the National IAM Benefit Trust Fund does not answer to stockholders. Fund assets are used for the sole benefit of union members and their eligible dependents. These assets pay for the benefits of the plan participants as well as the administration of the Fund.
Insured Plans
Insured plans are also funded by a pool of assets set aside by a benefit trust fund. However, these assets are used to pay premiums to insurance companies for providing health care coverage. The insurance company—rather than the benefit trust fund or the employer— typically controls the design of the health care plans. The premiums collected are used to administer the plans and pay claims; the insurance company assumes financial risk.
Insured plans must comply with certain federal legislation, such as ERISA (the Employee Retirement Income Security Act of 1974, as amended) and the Patient Protection and Affordable Care Act of 2010. They must also comply with applicable state laws, including rules about state-mandated benefits that can affect plan design.