Self Funded ERISA vs Fully Insured Priority
Last updated: August 27, 2026
Key Differences
The distinction between self-funded and fully insured ERISA plans is critical in determining priority when multiple claimants compete for a personal injury settlement.
| Feature | Self-Funded ERISA Plan | Fully Insured ERISA Plan |
|---|---|---|
| Who Pays Claims | Employer pays directly | Insurance company pays |
| ERISA Preemption | Yes – preempts state insurance law | No – subject to state insurance law |
| Priority vs. Hospital Lien | Plan may assert priority | Hospital lien generally has priority |
| State Lien Statutes | Preempted | Apply |
| Equitable Defenses | May apply if plan document does not reject them | Apply per state law |
ERISA Preemption
ERISA section 514 preempts state laws that "relate to" employee benefit plans. Self-funded plans are fully governed by ERISA and preempt state insurance regulation. Fully insured plans are subject to the savings clause, which allows states to regulate insurance. This distinction is critical because state hospital lien statutes and anti-subrogation laws are preempted for self-funded plans but apply to fully insured plans.
Priority in Small Settlements
When a settlement is too small to satisfy both a hospital statutory lien and an ERISA plan's subrogation claim, priority depends on whether the plan is self-funded or fully insured.
| Scenario | Priority | Reasoning |
|---|---|---|
| Self-Funded Plan + Hospital Lien | Plan may take priority | ERISA preempts state lien statute; plan document controls |
| Fully Insured Plan + Hospital Lien | Hospital lien has priority | State lien statute governs; no ERISA preemption |
| Self-Funded Plan + Medicare | Medicare first | Federal law (MSP) takes priority over ERISA plan |
| Fully Insured Plan + Medicare | Medicare first | Federal law (MSP) takes priority over state insurance law |
Plan Document Language
Self-funded ERISA plans that include clear plan language rejecting equitable defenses may enforce their subrogation rights more fully. Plan documents that explicitly state the plan does not recognize equitable defenses such as the made whole doctrine or common fund doctrine, and that the plan has first priority over all other claimants, may allow the plan to recover more. Without clear language, courts may apply equitable limits to the plan's recovery.
Identifying Plan Type
Participants can identify whether their plan is self-funded or fully insured by reviewing the Summary Plan Description (SPD). Self-funded plans typically state that the employer pays claims directly or that the plan is self-insured. Fully insured plans state that an insurance company underwrites and pays claims. Self-funded plans file Form 5500 with the Department of Labor, which is publicly available and indicates whether the plan is self-funded.
Why does it matter whether an ERISA plan is self-funded or fully insured?
Self-funded ERISA plans are governed by federal law and preempt state insurance regulation, including state hospital lien statutes. Fully insured ERISA plans are subject to state insurance law and do not preempt state lien statutes. This distinction determines whether the plan or a hospital lien has priority when competing for a small settlement.
Can I tell whether my employer's health plan is self-funded or fully insured?
Check the Summary Plan Description or contact your plan administrator. Self-funded plans typically state that the employer pays claims directly, while fully insured plans state that an insurance company pays claims. Self-funded plans are required to file Form 5500 with the Department of Labor, which is publicly available.