some state laws that relate to self-funded employee benefit plans, erisa does not regulate stop-loss insurance, since stop-loss insurance does not protect employees but instead protects a health plan itself or the employer. benefits and risks one of the main benefits of self-funding is that the group is able to customize the benefits it offers and tailor the plan to its employee base. with this in mind, the sponsor can craft plan provisions to cover certain benefits and exclude others as it sees fit. less is sometimes more, a plan which covers the services its employees will likely need and excludes the others will have much lower cost. as described above, employers that choose to sponsor a self-funded health benefits plan truly do so at their own risk. to be self-funded, the employer necessarily retains one hundred percent of the risk of the payment of the health benefits claims of plan participants. the practical effect of that is that many small groups simply cannot afford to self-fund; a common theory is that groups with too few employees are unable to collect a contribution sufficient to allow the employer to pay health benefits claims without bankrupting itself. while the practical solution to this is simply to charge a higher and higher contribution as necessary, both the affordable care act and the general business considerations prevent raising the employee's required contribution amount above a certain level. another major risk of self-funding is that the obligation to make claims determinations falls upon the plan administrator, which is most commonly the employer. while the employer's chosen tpa pays or denies claims when the spd is clear on how a given claim should be treated, dubious claims are referred to the plan administrator for final decision, because most asas specify that the tpa is not permitted to make claims determinations (which protects the tpa and plan administrator alike). sponsoring a self-funded plan has its risks, but it also has its rewards. while the group may incur unexpectedly catastrophic claims amounts, stop-loss is designed to mitigate those claims. size of self-funded market a recent study has reported that as of 2014, about 81% of workers covered by healthcare through an employer were in a partially or completely self-funded plan, which is up 21% since 1999. according to the department of health and human services, over 82% of employers with over 500 employees offer a self-funded health plan, and over 25% of firms with between 100 and 499 employees, and over 13% of employers with fewer than 100 employees also offer a self-funded health plan. as is demonstrated by these statistics, self-funded health plans are rooted in the same underlying mathematical principle as insurance in general: spread of risk. larger employers have more plan participants over which to spread the risk (loss) and are therefore able to more accurately predict and budget for the cost of the plan. in contrast, an employer with only 50 employees has a small number of participants over which to spread the risk and therefore may experience wide fluctuations in plan costs as the result of covered losses from only a small number of participants. non-traditional plan models mewas a multiple employer welfare arrangement, or mewa, is a vehicle through which more than one employer can come together and offer a self-funded plan to employees – a type of co-op. mewas are useful for small groups that on their own would not be able to self-fund; for instance, a number of local small businesses, each with a dozen employees, can pool their assets, form a mewa, and offer a self-funded plan as successfully as one company with the same number of total employees. erisa defines a mewa as: the term “multiple employer welfare arrangement” means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries... the definition goes on to except rural telephone and electric cooperatives, and any plan established or maintained pursuant to a collective bargaining agreement. the benefits included as welfare plan benefits are broadly described and wide-ranging. virtually any type of health, medical, sickness, or disability benefits will fall into this category, regardless of whether the benefits are offered pursuant to a written instrument or informally, funded or unfunded, offered on a routine or ad hoc basis, or limited to a single employee-participant. if it is determined that qualifying benefit is being provided, a determination then must be made as to whether the benefit is being provided by a plan “established or maintained by an employer or by an employee organization, or by both.” for example, mewas provide medical and hospital benefits, but mewas generally are not established or maintained by either an employer or employee organization, and, for that reason, do not constitute erisa-covered plans. there are certain requirements of a mewa, and many benefits; mewas are governed by state insurance law, rather than erisa, regardless of whether the mewa's constituent groups would separately be governed by erisa if they were to sponsor separate plans. section 514(b)(6)(a)(ii) of erisa provides that in the case of an employee welfare benefit plan which is a mewa, any law of any state which regulates insurance may apply to the extent not inconsistent with title i of erisa. accordingly, if a mewa is self-funded rather than fully insured, the only limitation on the applicability of state insurance laws to the mewa is that the law not be inconsistent with title i of erisa. in general, a state law would be inconsistent with the provisions of title i to the extent that compliance with such law would abridge an affirmative protection otherwise available to plan participants under title i or would conflict with any provision of title i, making compliance with erisa impossible. for example, any state insurance law which would adversely affect a participant's or beneficiary's right to request or receive documents described in title i of erisa, or to pursue claims procedures established in accordance with section 503 of erisa, or to obtain and maintain continuation health coverage in accordance with part 6 of erisa would be viewed as inconsistent with the provisions of title i. similarly, a state insurance law that would require an erisa-covered plan to make imprudent investments would be inconsistent with the provisions of title i. conversely, a state insurance law generally will not be considered inconsistent with the provisions of title i if it requires erisa-covered plans constituting mewas to meet more stringent standards of conduct, or to provide more or greater protection to plan participants and beneficiaries than required by erisa. the department of labor has expressed the view that any state insurance law which sets standards requiring the maintenance of specified levels of reserves and specified levels of contributions in order for a mewa to be considered, under such law, able to pay benefits will generally not be considered inconsistent with the provisions of title i. the department of labor also has expressed the view that a state law regulating insurance which requires a license or certificate of authority as a condition precedent or otherwise to transacting insurance business or which subjects persons who fail to comply with such requirements to taxation, fines and other civil penalties, would not in and of itself be considered inconsistent with the provisions of title i. school trusts school trusts are mewas, but some states impose slightly different requirements upon mewas established solely by a group of public schools. it is unclear whether some states treat these particular mewas differently due to the government funding of the schools or the public interest served, but some states have lowered the enforcement or standards or other requirements for these mewas. captives rather than a co-op, as each of the previous sections has described, a captive is a subsidiary created to provide benefits to its parent company or companies – although when a captive is offered by more than one employer, the captive is a form of co-op. captives present risk-management resources for employers who provide self-funded health plans to their respective employees. as is the case with all self-funding arrangements, when a self-funded health plan is offered by a captive, the captive, as opposed to any one particular employer, bears the risk. in october 2006, the international association of insurance supervisors published an “issues paper on the regulation and supervision of captive insurance companies.” the issues paper defines a captive as: an insurance or reinsurance entity created and owned, directly or indirectly, by one or more industrial, commercial or financial entities, the purpose of which is to provide insurance or reinsurance cover for risks of the entity or entities to which it belongs, or for entities connected to those entities and only a small part if any of its risk exposure is related to providing insurance or reinsurance to other parties. shock loss is the direct loss that is borne by a self-funding entity; if a self-funding entity has purchased stop-loss, amounts of shock loss that rise above an amount known as the specific deductible are covered by the applicable stop-loss policy. under the captive model, the parent companies do not themselves offer health plans. instead, the captive is the only entity offering, sponsoring, and maintaining the self-funded health plan. accordingly, the captive bears the risk of shock-loss. a captive increases the ability of a group to properly manage risk. self-funding is simply not an option to some employers; in order to be able to efficiently fund shock losses from the general assets of the plan sponsor, members of a group must contribute enough to the sponsor's general assets, in the aggregate, that the plan sponsor is able to pay claims incurred by participants of the plan. stop loss insurance many employers seek to mitigate the financial risk of self funding claims under the plan by purchasing stop loss insurance from an insurance carrier. these policies typically provide for risk retention limitations both on a specific claim and aggregate claims basis. an important aspect of self funded group health plans lies in the requirement that the employer remain liable for funding of plan claims regardless of the purchase of stop loss insurance. what this means, in turn, is a fund or company's own bank account creates a pool of their employees and is managed & distributed to claim payouts. in other words, only the employer has a contractual relationship with plan participants and beneficiaries. the stop loss policy runs solely between the employer and the stop loss carrier and creates no direct liability to those individuals covered under the plan. this feature provides the critical distinction between fully insured plans (subject to state law insurance regulations) and self funded health plans which, under the provisions of section 514 of erisa, are exempt from state insurance regulations. stop-loss policies are instrumental in establishing a "worst-case scenario", or aggregate for any given year. the aggregate stop-loss helps establish a finite number that can be compared to a plan's guaranteed fully insured cost. if the aggregate cost does not exceed the plans' fully insured guaranteed cost, self-funding may be a viable option. another way to look at aggregate insurance is an umbrella policy that caps a company's liability within a specified time period. lawsuits and liability in the united states, self-funded plans regulated under the employee retirement income security act of 1974 are notably exempted from insurance bad faith laws. the law has also affected medical malpractice liability.