Self-Insurance is intended to reduce the cost to an employer for those benefits that have predictable claims experience. To the employer and employees a self-insured plan functions exactly the same as an insured plan with one big difference. The employer is only paying for “claims” that have actually been incurred by the employee group plus a small administration fee that is paid to a “Third Party Administrator” for adjudicating the claims. The potential cost savings can be substantial!
Have you considered self-insuring your employee group insurance program?
An Overview of Self-Insuring
When a company offers group insurance benefits to their employees typically an “insured” approach to providing the coverage is used. The reason for the “insured” approach is to minimize the risk for the employer and to stabilize the overall cost of the plan by spreading the claims out over a large “pool” of participants.
Fully “insured” benefits are particularly important for Basic Life Insurance and Long-Term Disability benefits where the potential for a catastrophic loss is very great. (If an employee died and the resulting death claim was $50,000 it would be very difficult to absorb this cost on a self-insured basis).
There are some benefits, however, where the cost is contained with caps on the total amount of annual claims (as is the case with dental benefits). Extended Health and Weekly Indemnity benefits are also structured in such a way that these benefits are good candidates for “self-insurance”.
Insurance becomes costly for an employer when inflation, expenses, and trend factors are combined to drive up the rates for benefits. For example, if an annual inflation rate of 12% is used combined with an insurance company’s expense margin of 35%, claims for the year would have to be less than 53% of the total premium paid to ensure that the rates would not increase in the following year. (This means that only 53% of the premiums being paid would actually be going toward the cost of claims!)
Would self-insuring save your company money?
Contact us today for a no cost analysis of your group insurance program.