Initial Considerations For Self-Insuring Employee Benefits
Whilst self-insurance provides many benefits there are some additional administrative responsibilities that need to be considered as well as financial risks although the latter can be controlled by specific and aggregate protection. Being aware of the following features of self-insuring will help an employer arrive at the point where they can analyse whether self-insurance is for them.
1. Awareness of Increased Administrative Responsibilities
These will increase if a company is self-insuring as the functions of the insurance company still need to be replicated. Consequently all but the largest companies normally hire the services of a third party administrator. These administrative tasks include maintaining loss records and working with service vendors and consultants. Monitoring the performance of all the plan is critical to the success of the program and there needs always to be the highest level of support by senior management who also need to actively encourage claims and loss control programs.
2. Awareness of Financial Risks
As the employer is responsible for the first part of any claim it now faces a financial risk however with careful structuring of the specific and aggregate policy this exposure can be controlled with a limited financial downside. Although the price of the specific and aggregate coverage is subject to change as a result of experience and market conditions, the cost is significantly less than standard healthcare coverage due to the high deductible or self-insured retention.
3. Awareness of Tax Considerations
Whereas premiums under some insurance programs are generally tax deductible, under a self-insured program only paid losses and expenses are deductible as opposed to reserves. In other words whilst a self-insurance program does not result in the loss of a tax deduction the employer needs to be aware than no credit can be taken until claims are actually paid.
4. Awareness of the need for a Long-Term Commitment
Self-insurance should always be viewed as a long-term commitment as it would be expensive and time consuming to move back and forth between conventional and self-insurance. In addition the true benefits of self-insurance are best judged over a period of time as a single year's results may not be representative of the true savings.
