Self Insuring
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.
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