What is Self-Insured Group Health Insurance?
With self-insured group health insurance, a company takes on the financial responsibility and risk of providing its employees with health benefits.
The company collects premiums from employees and their dependents and pays medical claims directly instead of paying an insurance carrier.
The employer may contract with a third party administrator (TPA) to perform administrative services such as setting up the plan, reviewing claims, and arranging network contracts.
Self-insured group plans are more common in larger companies because of the financial risk, although some employers with as few as 25 people choose this type of coverage.
Which Laws Apply to Self-Insured Group Health Plans?
Self-insured group health plans must comply with a variety of federal laws governing employment, benefits, privacy, and nondiscrimination.
- Age Discrimination in Employment Act
- Americans with Disabilities Act (ADA)
- Civil Rights Act
- Consolidated Omnibus Budget Reconciliation Act (COBRA)
- Employee Retirement Income Security Act (ERISA)
- Health Insurance Portability and Accountability Act (HIPAA)
- Pregnancy Discrimination Act
- Various budget reconciliation acts
What are the Advantages of Self-Insured Group Health Insurance?
Companies choose self-insured options for several reasons, including these:
- Easy to customize.
Rather than purchase a pre-packaged insurance plan, a company may design benefits to match the needs of covered employees.
- Choose providers.
An employer can select providers and build a network that suits employees' needs.
- Maintain financial control of plan reserves.
Premiums set aside for future claims can be managed and invested by the employer to potentially earn interest.
- Improve cash flow.
The employer pays claims as they occur instead of pre-paying for coverage, which can improve short-term cash flow.
- Reduce conflict and confusion from state benefit mandates.
Because federal law primarily governs self-insured plans, employers may avoid some conflicting state regulations.
- Relieve certain premium taxes.
Some states assess taxes on insurance premiums that generally do not apply to self-insured arrangements.
Employers that want to limit catastrophic exposure sometimes combine self-insurance with Self-Insured Stop-Loss Insurance to transfer large losses to a reinsurer or stop-loss carrier.
Large employers often use Self-Funded Group Medical arrangements to maintain plan control while managing costs.
A self-insured group health plan may be a smart decision for a company. Understand its risks and benefits, ensure compliance with federal rules, and consider professional help to set up and manage the plan.
If you want assistance evaluating options and carriers, talk to an agent.
Frequently Asked Questions
How does a company pay claims under a self-insured plan?
The employer funds and pays claims directly as they are submitted, often using a third party administrator to process payments and manage networks.
Do self-insured plans follow state insurance rules?
Most self-insured group health plans are governed by federal law rather than state insurance regulations, though some state rules can still apply in limited areas.
What is stop-loss insurance and why might an employer buy it?
Stop-loss insurance protects an employer from very large or unexpected claims by reimbursing amounts above specified thresholds.
Are self-insured plans riskier for small employers?
Smaller employers face more financial risk from unpredictable claims, which is why self-insurance is more common among larger firms with predictable claim patterns.