The Affordable Care Act (ACA) changed a lot about health insurance for both large and small businesses. Unfortunately, some of those changes mean small businesses pay up to 18% more than companies with over 100 employees, while still getting the same insurance.
This is why some companies are looking at the option of self-insurance. Read on to find out if this is a good choice for you.
What is Self-Insurance?
With a self-insurance for small business approach, also known as self-funded insurance, you don’t have a traditional arrangement with an insurance company.
Instead, you as the employer collect the insurance premiums from your employees and store those in a separate fund. When an employee files an insurance claim, you use the money from the fund to pay the claim.
You can also use this approach for dental, vision, and other types of insurance if it works well for your company.
How Does Self-Insurance WorkCompare to Traditional Insurance?
To your employees, self-insurance won’t seem any different than a traditional insurance approach. They’ll still pay premiums, use an insurance card, have co-pays, and get reimbursed for eligible claims.
Behind the scenes, though, the process is very different.
In a traditional approach, insurance providers already have a network of doctors who participate in their plans, and employers don’t have to do much more than pay the monthly premiums. The insurance company is the one who manages claims and reimbursements.
With self-insurance, you work with a broker or consultant to set up the plan. This includes defining the best plan structure and finding providers. The consultant can also help you find a third-party administrator for assistance with claims processing.
Additionally, you’ll need to decide where to store the funds from the premiums, and make sure you pay out claims promptly.
Another option is captive insurance. This is similar to self-insurance except, in this case, one or more clients form their own insurance company.
Risks and Benefits of Self-Insurance
Once you know how to self-insure your business, you want to find out if it’s the right approach. As with traditional insurance, self-insurance has both risks and benefits.
The primary risk is that you have a bad claims year and end up paying more than you expect. To counteract this, some businesses purchase stop-loss insurance to get reimbursement for claims that exceed the expected coverage.
The self-insurance approach also carries a learning curve to understand all the healthcare regulations involved and what works best for you. If you have employees in multiple states, you’ll need to stay up-to-date on regulations in each state to make sure you’re in compliance.
On the plus side, you could see some significant cost savings. You won’t be paying the insurance company to manage your plan, and if you don’t have as many claims as expected, you keep the extra paid into the self-insurance fund.
You also have more control over the kind of plan you want, with the flexibility to meet your specific needs.
Is Self-Insurance the Right Fit?
Self-insurance won’t work for every small business since it carries some risks and adds some time to understand health insurance. It’s worth investigating, though, because the benefits could be enough to make it a good choice for your company.
Need more advice for small businesses? Check out our blog under the Small Business category