The Advantages of Self-Insuring Employee Benefits
Potential advantages to self-insurers include the following:
1. The Potential to Increase Earnings and Improve Cash Flow
Not only does the employer have the potential to benefit from any savings if they enjoy good experience but cash flow can often also be improved as follows:
- Self-insured plans do not require the pre-payment of premium to an insurer and funds can be used to pay claims as and when they arise.
- The self-insurer retains the use of these funds prior to any claims being paid and can obtain interest on funds that would otherwise have been paid to an insurer.
- Finally, the self-insurer is only responsible for today's claim costs as insurers normally have to load premiums for the projected cost of medical inflation.
2. The Potential to Reduce Costs
Carrier risk charges and profit margin are eliminated. These charges not only include charges for other policyholder's claims costs and office overheads but also the costs of marketing the program as well as any commission charges to brokers. State insurance taxes are also reduced as the self-insurer only pays premium tax on stop-loss premiums.
3. Increasing the Speed of Processing Claims
Claims are processed more quickly as the plan administrator is accountable to the employer and has an interest in providing an efficient service.
4. Access to Managed and Preventative Care
Managed Care and cost containment services are normally arranged by the administrator who often works with networks who agree to reduced fees in return for being affiliated with the plan. A Self-Insurer will also have an incentive to introduce wellness programs for its employees to help reduce claims costs.
5. Control of Plan Design
The plan design can be tailor-made to match employee's requirements. Without the need to adhere to state discrimination and mandated benefit laws the plan can be modified at any time without the need to refer to an insurer.
6. Avoidance of State Mandated Benefits
Some state mandatory benefits are avoided which help keep the costs down. Today it is estimated that there are over 1,000 state mandated benefits, which range from providing hairpieces to marriage counselling.
7. The Flexibility of Risk Assumption
The level of risk assumed by the employer can be adapted to suit its needs through the purchasing of specific and aggregate coverage. Whilst self-insurance has distinct advantages a company also needs to be aware of its increased responsibilities which include the following:
- Increased Administrative Responsibilities
The employer has to provide services normally provided by an insurance carrier although this is normally accomplished by contracting with a Third Party administrator. - Financial Risks
The employer can be at risk in the event that claims experience is poor or from any legal action against the plan.
