Cost Advantages of Self-Insured Medical Plans

Large corporations may look into supplying their employees with self-insured medical plans. This option allows the employer to decide on a universal plan for workers while also assuming most of the health insurance costs. Although the employer assumes almost all of the risks, self-insured plans also have cost advantages.

Saving on Premiums

• Large corporations save money on self-insured medical plans by bypassing an insurance company's high premiums. The employer places revenue into the universal self-insured plan that only pays the covered benefits. This money goes directly into the claims whenever employees submit claims. This saves the employer money, as they don't have to pay the insurance company monthly premiums for the medical plan.

State Mandated Benefits Exemption

• Corporations offering self-insured plans are exempt from certain state regulations based on the Employee Retirement Income Security Act, or ERISA. Under ERISA, employers do not have to pay state premium taxes on health insurance plans, since the employer does not engage in the business of offering and selling insurance. With self-insured plans, the employer also only covers the benefits they specify instead of having to provide state-mandated benefits. Only the state of Hawaii is an exception to the federal ERISA regulations.

Minimum Premium Plan

• Employers have a wide range of options available when offering self-insured plans. The employer can decide what benefits to offer and how much insurance risks she wishes to cover. This can allow the employer to tailor plans by how much funds placed into the insurance. Another way corporations seek a cost advantage is by offering a minimum premium plan. In this type of plan, the employer works with an insurance company. The employer pays all claims up to a specified amount, and the insurance company pays anything over this amount. In addition, a minimum premium plan saves the employer money as the insurance company handles all claims processing and other administrative duties.

Stop-Loss Coverage

• When claims become a financial burden for the corporation, the employer can purchase stop-loss coverage to go with the self-insured medical plans. This type of reinsurance coverage sets a limit to the amount of expenses the employer has to pay. The employer can have this limit for each worker's individual health coverage, or can have a group limit for the entire corporation's health coverage.