Self-insurance can create risk exposures that most smaller employers don’t want to take. Still, 15 percent of smaller employers (1-199 employees) find the benefits outweigh the risks.
What Is Self-Insurance?
Employers providing health benefits to employees have three basic choices: buying a fully insured plan, self-insuring or offering employees a choice of fully insured and self-insured plans. With an insured plan, the employer pays a flat per-enrollee premium to an insurer that administers the plan and pays claims. Like an insured employer, a self-insured employer has a written plan. However, it pays for its workers’ claims directly as incurred and retains the risk of higher-than-expected claims.
So Why Do Employers Self-Insure?
Self-insurance offers a variety of potential advantages to employers, including:
• Autonomy, control and flexibility of plan design, including exemption from state-mandated benefit requirements;
• Lower administrative costs than a commercial carrier would charge;
• More timely and complete access to data on health claims, which can help employers make more informed decisions about plan design;
• Ease of altering their contract with a third-party administrator (TPA) or stop-loss insurer without affecting employees’ choice of providers;
• Improved cash flow generated by keeping funds in-house until needed for payment of claims; and
• Avoidance of state insurance premium taxes.
State laws that regulate fully insured group plans usually do not apply to self-insured plans. And some provisions of the federal Patient Protection and Affordable Care Act pertain to fully insured plans but not to self-insured plans.
Self-insurance has potential disadvantages, however. These include:
• Financial risk of unexpectedly large claims;
• Regulatory compliance, which is easier with a fully insured plan;
• Loss of some discounts. Insurers and larger employers have the clout to negotiate discounts with health providers that smaller employers lack.
Most self-insured employers outsource plan administration and claim processing to a third-party administrator. They can also mitigate some of their risk by purchasing stop-loss insurance, which will reimburse a covered employer for claims above a specified dollar level.
USI Insurance Services can help you evaluate your health benefits and claims and help you determine if self-insuring is a viable option for your organization. If so, we can help you structure your plan and also help arrange stop loss coverage to protect your organization from catastrophic claims.