Self-Insurance Is on the Rise

Jacqui Kenyon

self insuranceSmall companies with young, healthy employees are turning away from the regular insurance market in order to save cash—but experts worry that this opting-out will drive up the cost of insurance at other companies.

These companies are adopting self-insurance—a program typically used by large companies with thousands of employees—in an attempt to avoid the coverage minimum standards set by the Affordable Care Act, according to The New York Times.

When a company self-insures, it takes on almost all of the financial risk of providing health benefits to its employees rather than paying a regular premium to an insurance company. If an employee requires health care, he or she—or his or her health care provider—files a claim with the company, which then pays out. This is why self-insurance appeals to businesses with young, healthy staffs: If employees do not require medical procedures, the company doesn’t need to pay.

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Companies that self-insure typically buy something called “stop loss insurance,” which will cover them in the event of a very expensive claim by a single employee. Stop-loss insurers, however, can and do limit coverage of individual employees with health problems. This could lead to a division between a young, healthy workforce and an older, sicker workforce, with the commercial insurance industry having to insure the more expensive latter group.

The cost of insuring older workers with more health problems could result in higher premiums for those insured under commercial health plans.

  • Christel Ridao

    Good article! Some companies that are fully-insured, as opposed to self-insured, can still benefit from “self-funding” through consumer driven healthcare such as a Health Reimbursement Account (HRA). An HRA is funded by the employer to help pay for employees’ eligible health care expenses.