Self-insuring means you pay health benefits with corporate assets rather than paying a premium to transfer that responsibility to a third party, says James Kinder, CEO of the Self-Insurance Institute of America in Santa Ana, California. He stresses that we're all self-insured to a degree, because no policy covers every possibility, and most include a deductible or co-pay.
Kinder also points out that the term "self-insured" doesn't necessarily mean you're assuming 100 percent of the risk when it comes to your employees' medical costs. Companies can cap their liability through "excess" or "stop-loss" insurance, which reimburses covered expenses over a specified amount.
The most common self-insurance opportunities for smaller companies are health and short-term disability coverage. Decide what you will and won't cover, along with how much risk you're willing to take, and set up your program accordingly. Designate a staff person or contract with a third-party administrator to manage the program.
Kinder says entrepreneurs consider self-insurance for two reasons: to reduce costs and to gain control over the benefits provided. "You can design a program to meet the needs of your [employees], not some off-the-shelf product offered by insurance companies," he says. Another advantage of self-insuring is that such programs fall under federal regulations and aren't under the jurisdiction of state insurance regulators. You pay no state premium taxes or assessments and aren't subject to state benefits mandates.
Are there drawbacks? Of course. Self-insurance requires more direct involvement on the part of the employer. You have to manage the plan, not just pay the premium and forget about it. Also, says Kinder, "self-insurance is a long-term arrangement. You don't jump in and jump out." But if your work force is stable, you have a track record and statistics to determine loss predictably, you have the cash flow necessary to facilitate the extent of your agreed liability, and you're not afraid to assume risk, you may be a candidate for this option.
The Self-Insurance Institute of America ( 800-851-7789 or http://www.siia.org) publishes Who's Who in Self-Insurance Services Users Directory, available online or in hard copy for free. And "Reducing Your Costs: Facts About Self-Insuring Your Health Benefits," a booklet by James Kinder, is available to nonmembers for $5.