What are Self-Insured Plans and When Should I Go Self-Insured

What are Self-Insured Plans and When Should I Go Self-Insured

So far, we’ve learned about how health plans work, the elements of a health plan, and the differences between a fully-insured and self-insured health plan. But maybe a self-insured plan is the best for a business, and you want to find out more about it.

In this article, I’ll go more in-depth about what self-insured plans are and the pros and cons.

When should a small business consider a self-insured plan?

Let’s limit our discussion to companies with more than 25 employees but less than 200. There are occasions when companies of more than 200 employees may not utilize a self-funding strategy, but it should always be considered an option. Conversely, there may be situations (depending on state law) when a company under 25 employees may utilize a self-funding strategy, but this is usually not the case. So, let’s consider when it may be appropriate for companies between 25 and 200 to self-insure. 

Potential Advantages – The potential to save money is the major advantage of a self-insured health plan. However, savings are not guaranteed, and a more hands-on approach to the plan is required. Understanding the different components of the health plan is the first step to determining if self-insuring is the appropriate strategy.

Potential Disadvantages – Savings are not guaranteed, plus an improperly structured plan could result in liabilities not usually associated with fully-insured plans. Each plan component needs to be scrutinized for potential savings or loss before a decision is made. An understanding of the renewal process is also critically important.

Where does a level premium plan fit into this discussion? 

A level premium plan is actually a type of self-insured plan, but it does have some characteristics of a fully-insured plan.

  • The plan components are broken out separately for transparency.
  • The maximum claims fund is calculated. Claims incurred above this level are insured.
  • The company retains the unused portion of the claims fund at the end of the plan year.
  • The maximum claims amount plus the total fixed costs are calculated to determine a monthly premium per employee. This premium amount is set annually.
  • Because it is a self-insured plan, underwriting is allowable.

There is no absolute answer as to when a company should self-insure, but:

  • With favorable underwriting, companies between 25 and 100 employees may find it advantageous to utilize a level premium plan.
  • Companies between 100 and 200 employees may find it advantageous to utilize either a level premium plan or a self-funding strategy with reinsurance.
  • Each company is different, and there is no one-size-fits-all when it comes to health insurance. However, with underwriting and proper analysis, each company can determine the most suitable plan.

The choice between going with a fully-insured or self-insured health plan is a difficult one, but I hope this article helps you think through the options. If you want to talk about this in more detail, give me a call at (919) 261-6495 or email me at bill@kiserbenefits.com

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