As an alternative to conventional coverage, self-insurance is an opportunity for an organization to improve the quality of its risk management program. Instead of purchasing an insurance policy, the self-insured accepts the responsibility for risk. Self-Insurance is a risk management method in which a calculated amount of money is set aside to compensate for the potential future loss.
Employers typically choose to self-insure because it gives them more opportunities to control costs and enjoy the benefits of improved cash flow. A self-insured has ownership of and access to all program data. They can participate in decisions regarding program design, claims administration, provider networks, medical case management, wellness programs, and excess/stop loss insurance terms.
Dig Deeper :
Many lines of coverage such as general liability, professional liability, products liability, property and crime are considered to be unregulated lines of coverage. They are not subject to state regulations when self-insured. There are no governmental restrictions on investments, financial audits, claims reporting, or security for paying claims. However, to self-insure workers compensation and automobile liability, an organization must first gain approval from state regulators.
Self-funded health plans are subject only to federal regulation, thereby giving an employer almost total control of the plan design. Having no premium taxes , no insurance company risk and no retention charges, results in companies having significant savings. However, it is the pre-emption of state regulation that saves the most money in self-funding.
Completing and submitting an application to be self-insured is most often the most time-consuming aspect of putting together a self-insured program. Regulations vary by state and the application process can take between 60 and 90 days. Most states will require financial statements, description of the company and proposed claims administration program, historical losses, details of excess insurance coverage, and a self-insurance bond or LOC as security.
A census of your employees, a history of claims experience and a copy of your current benefits is all that is required to obtain a self-funded group health proposal.
Not many self-insured companies handle their own claims. Claims service companies specialize in providing claims administration and loss control services. They contract with self-insured companies to provide these services for an agreed fee. Depending on the region, these firms may be called service companies, third party administrators (TPA’s) or claims administrators.
A self-funded company may engage in wellness or loss control programs as well as purchase insurance to limit its exposure to loss. Hewitt Coleman assists in establishing the parameters of these programs.
