October 28, 2020  
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Small Business Health Insurance


Health Insurance Plans: Self Insurance for Small Businesses

Written by John Foley for Gaebler Ventures

Self insuring a small business health insurance plan can make sense for many companies. How to determine if self-insured health insurance makes sense for your company? That may require some outside expertise.

If your company has more than 25 employees, you should seriously review the merits of being partially self-insured.
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Today, almost 70% of U.S. employers self-fund some portion of their health care plans.

Having a self-insured health plan means that you assume some or all of the risk for providing health care benefits to your employees. The most typical arrangement is that you insure claims up to a certain amount and then use an excess-risk policy from an insurance company to handle the bigger claims.

The two biggest gains to self-insuring are greater transparency and improved cash flow.

Transparency is the ability to see how the employer's plan is utilized. Since a self-insuring employer has direct access to claims data, the employer can make fact-driven changes to the plan of benefits that have a direct impact on how the plan is utilized. For example, you might notice that employees are going to the emergency room instead of going to an urgent care facility, where treatment costs considerably less. You can then change the plan to encourage employees not to go to the emergency room unless it is essential.

Cash flow improves when a company self insures because the employer doesn't have to pre-pay an insurance company for coverage. Instead, payments are made directly to providers 30-60 days after healthcare services are incurred. More importantly, if no claims are made, you are not paying for insurance coverage that only benefits an insurance company's bottom line.

Savings to an employer that self insures often exceed 30% compared to a fully insured plan. However, employers should know that if the employee claims are unexpectedly high, the employer could end up paying 10-20 percent more than a fully-insured plan.

There are many consultants who can advise you on how to self-insure your company's healthcare benefits. It's not something you should do on your own without expert advice.

John Foley has been assisting business owners with health insurance coverage for over 20 years. He is currently running his own small business health insurance consulting firm, Benefit Consulting Group.

Conversation Board

Does your company self insure its health insurance plan? What lessons have your learned regarding offering affordable small business health insurance through self insuring?

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