What Companies Need to Know About Self Insurance

A self-insured or partially self-insured group health plan is one in which the employer assumes part or all of the financial risk for providing health care benefits to its employees.  

 Rather than paying a fixed premium to an insurance carrier, self-insured employers pay for part or all of the out-of-pocket claims as they are incurred instead of buying insurance policies that are a direct replication of the benefits being offered to the employees.

Why Self-Insure?

  1. The employer is able to better see, understand, and control the cost drivers of the health plan, especially its claims.
  2. The employer is not subject to conflicting state health insurance regulations/benefit mandates, as self-insured health plans are regulated under federal law (ERISA)
  3. The employer is not subject to state health insurance premium taxes, which are generally 2-3 percent of the premium’s dollar value.
  4. By correctly choosing limits of financial exposure, employers risk little and save lots.

When companies choose to partially or fully self-insure, they are able, with the right assistance and financial modeling, to save 20-30%! 

Most Self Insured Companies Lose Money:

One big mistake you can make in self-insurance is to participate in a “BUCA” (Blue, United Health, Cigna, Aetna) This causes you to give back much of the money you would otherwise save.  There are much better alternatives.

Another big mistake is to “Ab-delegate” (“Abdicate” plus “Delegate”) the C-level decision down to the head of HR, who isn’t degreed in finance and may not understand the metrics of risk distribution strategies.

The third mistake is to solely rely on a broker whose commission is based on the size of your premium. To incentive premium reductions without cutting quality of coverage it’s wise to invite an objective analyst who is not  paid by the carrier.

The Benefit Equation

Most Fortune 1000 companies self-insure to gain quality benefits at a markedly lower cost, but the concept can be applied effectively to smaller companies who would like to use partial self-insurance to reduce expenses dramatically! Here’s a graph that shows one company’s savings by moving from a fully insured to partially insured plan:

 


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