The term self-insurance in the context of group benefits elicits a visceral fear and anxiety among a number of employers. Whether it be the perception that they are “too small” to self-insure or they had a bad experience with a self-insured plan back in the 90’s.
Stated plainly, self-insuring your medical plan is THE ONLY way to take ownership of your plan and put yourself on a path to controlling what is spent employee health coverage. But what does self-insurance even mean?.
Like anything else, self-insuring a group health plan lies on a continuum and it means different things to different employers. For the large jumbo employer, with tens of thousands of employees, there is very little, if any, insurance and few administrative items they do themselves. For the small to medium sized employer, it is a simple matter or a math equation balancing costs of insurance to protect the financial risk taken by employers and the claims that could potentially be incurred.
Any employer can self-insure. In fact, many probably do already, without even knowing it. Suppose you employ 4 people. One of your teammates gets a paper cut, that is pretty deep. Also suppose there happens to be an urgent care clinic right next door. Rather than file a work comp claim, many employers would tell that employee to simply go next door, and bring back the receipt or the bill. The expense is then either paid or the employee is reimbursed. Congratulations, you just self-insured a work comp claim!
Broadening this approach to group health insurance, a company can use this very same approach to lower their monthly insurance costs. It is no secret, health insurers price their premiums beyond the risk; meaning to include, say a $25 copay, with your plan, you are likely paying more in premium than the total amount of times a plan members could conceivably use that $25 copay benefit in a given year.
The approach then becomes very simple to reduce cost. Eliminate the insurance plan with a copay, saving the premium, pay the negotiated amount for the particular service that the copay had been tied to, and asking employees to pay the same $25 they would have paid under the managed care program.
Now in 2019 we have a very big advantage that the policy makers who allowed this tax free exchange didn’t anticipate when they wrote the tax code to allow this back in 1954….technology. The concept of medical reimbursement was meant to be just that…a reimbursement where the employee would pay, collect a receipt, come into HR, and ask to be reimbursed.
Now, we have direct payment arrangements where the exchange could be made seamless, while documenting all the items needed to classify the exchange as tax advantaged. The end result is the same, premium savings, with little to no perceived difference in plan operation or employee experience.
The degree to which employers use this approach correlates to what degree an employer plan is self-insured.
Brass tacks of the matter is this; insurance should be used for the infrequent, high cost, catastrophic events and benefits should be offered, paid for, and designed by the employer according to the specific needs and desires of their employees, preferably with tax free money. So when you hear the term self-insurance put the brakes on the feelings of anxiety or distant memories of some bad experience and seek to look at the approach from a different perspective.