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Employer Self-Insurance: Is it Right for your Organization?

In the new system of health care, organizations are looking for options. One of those is employer self-insurance.

Employer self-insurance is just what it says: an organization taking on the risk, cost and underwriting of health insurance to employees. When self-insuring, an employer pays each time an employee makes a claim instead of paying a premium to an insurer.

Companies with a large number of employees that have chronic diseases or are older than the norm may not benefit from self-insuring; however, if a group of employees is young and apparently healthy, it could be worth it.

When it comes to employer self-insurance, the Self-Insurance Institute of America stated that usually organizations who self-insure set up a special trust fund to allocate employee and corporate contributions to the health plan to pay for any claims.

Employer self-insurance used to be available only to large companies, but because of changes connected to the Affordable Care Act, it may now be a more viable option for smaller businesses.

Four factors organizations should be aware of when considering employer self-insurance:

1. Employer self-insurance could save money over time.

Immediate savings come from eliminating the 2% to 3% premium tax built into fully insured plans that are offered by insurance providers.

Also, because employers can design a health plan for their specific employees, it eliminates waste on unneeded programs.

Employer self-insuring allows companies to pay only for the claims their employees make. “All you’re doing is betting on the health-care expense of your population,” said Joe Part, founder and managing partner at Alltrust Insurance. “If you win, statistically you’ll save 10% or 20% — that’s a lot of money. If you lose, then statistically you’ll pay 10% more than if you were fully funded.”

What’s more, when employees know their company’s own funds are at risk as the primary insurer, employees have more of an incentive to make wise financial decisions when it comes to taking care of their health-care needs, which, in turn, benefits the company’s bottom line.

2. With employer self-insurance, organizations take a financial risk if employees make many or large claims.

A major difference between employers who choose to be fully insured by a health insurance provider and employers who choose to self-insure is their comfort level with the risk.

Employer self-insurance places all of the risk on the company.

But even that risk can be mitigated to some extent. Many companies that self-insure also purchase reinsurance — also called stop-gap insurance. This means a health insurance provider will pay some medical expenses if an individual’s claims go over a certain amount of money, or if a group’s claims go over a percentage of what is expected.

USA Today noted recently stop-loss coverage can kick in when medical costs per worker are as low as $10,000 or $20,000. That limits employer risk almost as well as a regular plan.

3. Employer self-insurance places health plan control into the hands of the organization.

Instead of having to go along with what an insurance company determines is important for a health plan, the employer can make those decisions. This is especially helpful when looking at what might be unique to a company’s group of employees.

The employer also has easy access to information about claims made, which allows decision-makers to see what types of programs and coverage are needed. Being able to customize a plan that works for a particular company offers a lot of freedom.

Employees may benefit from customized plans that a large provider cannot offer. For example, a group of employees who are older than 50 may not need to pay premiums for maternity benefits while a group of young employees may not need to pay premiums for certain medications.

4. Employers are responsible for following health insurance regulations when Self-Insuring.

In a fully insured plan, a provider takes care of the details needed to follow the necessary rules. With employer self-insurance, an organization takes on that responsibility. However, following those regulations is less difficult than some may think. The Self-Insurance Institute noted that the regulatory concerns for an employer choosing self-insurance is not much different when purchasing fully funded insurance for employees.

Although employer self-insurance is not for everyone, “it could be fabulous for 20% to 25% of companies out there,” Part said.

Additionally, HealthCare.gov points out that employers who do not want to oversee their health care plan have the option of hiring an administrator to oversee enrollment, claims processing and provider networks.

If you've considered employer self-insuring and would like to discuss it further, please contact an Alltrust Specialist now.