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Self Insured Health Insurance Plans

Self insured health insurance plans are offered by large employers. They are called “self insured” because these group health insurance plans don't involve paying premiums to a separate insurer. Health insurance plans offered by small businesses won't be the self insured type. Before you commit to any provider for your self insured health insurance plans, read the guide below so that you truly know what you’re getting.

Self Insured Health Insurance Plans: Basic Information

When a self insured health insurance plan is put into place, the employer will likely pay an insurer (or another company that administers healthcare claims) to administer the plan on its behalf. The employer is responsible for paying all of the costs associated with the plan, which includes all claims and administrative costs, directly out of its available funds.

The employer takes a risk when this type of health insurance plan is implemented, since the company needs to take steps to make sure they have sufficient funds to pay claims. These plans are subject to strict government regulations and are usually very well-run.

Self Insured Health Insurance Plans: How The Plan Works

Under the terms of a self insured health insurance plan, the employer pays claims for medical expenses as the employees incur them, as opposed to a premium being paid to get insurance coverage. The employer and the employees make contributions to the insurance plan, and the money is placed into a trust account. The trust account funds are to be used only to pay out on claims.

Self Insured Health Insurance Plans: Popularity

The results of a report released in 2000 by the Employee Benefit Research Institute indicated that about 50 million workers (as well as their dependants) received benefits through self insured heath insurance plans offered by their employers. This number works about to about one-third of all workers in the United States who are members of a private employer-sponsored insurance plan.

Self Insured Health Insurance Plans: Advantages For The Employer

Offering this type of health insurance plan makes sense to employers for a number of reasons:

  • A self insurance health insurance plan offers flexibility. The employer can tailor the plan to meet the needs of its employees, rather than having to implement a standardized plan offered by an insurance company.

  • The employer has control over how the funds in the trust account are invested. The interest income generated by the plan adds to the amount of funds available for paying claims as opposed to generating profit for an insurance company.

  • Since no premiums need to be paid, the employer is not expected to pay for insurance costs in advance. This improves cash flow for the company.

  • Self insured health insurance plans are administered under federal law. This makes it easier for employers with locations in multiple states to comply, since regulations for insurance varies, depending on the individual state.

  • These insurance plans are not subject to tax at the state level. Insurance premiums are generally taxed at a rate of between 2-3%.

  • With a self insured health insurance plan, the employer can sign an agreement with the provider or provider network of its choice, as opposed to having to sign up with an existing network through an insurance company. The employer has the freedom to negotiate pricing as it sees fit.

Self Insured Health Insurance Plans: Disadvantages For The Employer

Funding a self insured health insurance plan isn't the best option for every employer. There is a certain amount of financial risk involved, since the employer is responsible for paying the cost of employee claims. The employer must ensure that it has the financial resources available to cover these costs.

The amount being paid out in claims cannot be predicted in advance, and if a catastrophic event occurs, an employer that does not have good cash flow in place, it will have difficulty in meeting these obligations. Many smaller companies simply do not find it feasible to offer their employees self insured health insurance plans. Plans have been put in place for employers with as few as 25 employees, however.

Self Insured Health Insurance Plans: Protection Against Catastrophic Events

An employer can take steps to protect itself against the costs associated with paying claims as a result of catastrophic events by putting a stop-loss insurance plan into place. The stop-loss insurance plan will reimburse the employer for any claims paid over a specific dollar amount. The stop-loss policy is negotiated between the employer and the stop-loss insurance company; it is not put into place to cover employee medical expenses.

Self Insured Health Insurance Plans: Payroll Deductions

Employee contributions to a self insured health insurance plan are made through payroll deductions. The difference between contributions made to a self insured health insurance plan and insurance premiums is that the employer retains the employee contributions for the insurance plan, as opposed to sending them to an insurance company. The money is held until it needs to be paid out to cover claims, or deposited into a trust account, where any interest earned accumulates on a tax-free basis.

Self Insured Health Insurance Plans: Administration

The employer can choose to administer the self insured health insurance plan itself. Another option is to turn over the administration duties for the plan to a third-party administrator (TPA). The TPA can assist the employer with setting up the group health insurance plan and the stop-loss insurance policy. In addition, the TPA can provide assistance with negotiating contracts with healthcare provider networks and plan review services.

Self Insured Health Insurance Plans: Applicable Laws

A self insured health insurance plan must comply with a number of laws, including:

  • The Employee Retirement Income Security Act (ERISA)

  • The Health Insurance Portability and Accountability Act (HIPAA)

  • The Americans with Disabilities Act (ADA)

  • The Consolidated Omnibus Budget Reconciliation Act (COBRA)

Compare Health Insurance Plan Options Now!

You can learn more about self insured health insurance plans today!

Nothing could be easier; all you need to do is click on the handy tool located right at the top of this page to compare multiple quotes from companies that offer traditional health insurance plans and also set up self insured health plan arrangements.

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