What is a Self-Insured Health Plan?

In a self-insured group health plan, a company provides group health care insurance directly to its employees rather than through purchased coverage from an insurance provider. In the United States, about one-third of all workers receive health benefits from self-insured plans.

Tailored Plans

• Self-insuring health care lets an employer create a tailored plan to meet the specific needs of his employees (as opposed to purchasing a "one-size-fits-all" health plan).
  From an employee's point of view, a self-insured group health care plan has the same look and feel as an outsourced plan.

Law of Numbers

• The Law of Numbers, sometimes called the law of averages, says the larger the size of a group, the closer statistical projections of that group's behavior will match its future state. When a company has a sufficiently large number of employees, it can use the Law of Numbers to determine the future cost of health care--a requirement for self-insuring.

Accurate Projections

• Self-insuring requires accurate cost projections because a company must set aside sufficient funds to cover future costs. To do that, company statisticians calculate the required amount using the Law of Numbers plus actuarial and insurance information.
  If your company has its employees share in the cost of their health care (and most do), the amount you pay in monthly premiums also derives from those calculations.

Benefits

• Having a company health plan tailored to meet your specific needs means you should receive improved monitoring of, and faster response to, your individual needs by people who work for the same company you do (even if it doesn't seem that way sometimes).
  Your company also can use the Law of Numbers to determine your group's need for future care--the "flip" side of future costs. That knowledge lets your company customize its group health care plan to meet your changing needs.
  Self-insuring also means your employer controls the health care reserves and the interest they earn. That interest reduces total costs, meaning you and your employer pay less for your coverage.
  Finally, the federal government regulates self-insured group health insurance plans. As a result, your company doesn't need to create different programs to meet conflicting state regulations or pay state taxes on collected premiums.

Modified Self-Insurance

• Most companies modify their self-insured plans by buying "stop-loss" insurance to cover claims above a specified limit. To understand how that works, imagine a policy with a multimillion dollar deductible. The company covers the "predictable" projected costs, and the "stop-loss" covers everything above that. Companies rarely meet their stop-loss limit, making stop-loss coverage extremely affordable.