Should Your Small Business Opt for Self-Insured Group Coverage?There are pros and cons to self-insured groups. But a new survey highlights misunderstandings about how these groups work that could come back to haunt small businesses.
The Self-Insurance Institute of America defines a self-insured group health plan as one in which the employer assumes the financial risk for providing health care benefits to its employees. In practical terms, the SIIA explains, self-insured employers pay for each out of pocket claim as they are incurred instead of paying a fixed premium to an insurance carrier, which is known as a fully-insured plan.
But here’s a potential downside: Members of a SIG are financially responsible for the workers' compensation claims of all the companies in their group—often for years—not just their own businesses. And 41 percent of small business owners in a recent Employers poll don’t realize that.
"While close and continuous examination of costs is smart business, many small businesses are lured by self-insured groups' promises of lower costs, which unfortunately expose them to increased risk,” says Douglas Dirks, president and CEO of Employers. "It's important that small business decision-makers understand the collective financial risk and liability they inherit should other group members default, leave the group or if the group is forced to close."
With this in mind, it’s important to consider the impact of workers’ compensation insurance when considering a SIG. Upfront costs are, of course, important. But long-term savings through programs like loss control, anti-fraud and return-to-work programs should also be factored into that equation. Employers recommends asking self-insured group administrators nine these nine questions:
1. How well funded is my self-insured group?
2. How many claims have occurred while my company has been a member?
3. What is the expected lifetime cost of each of these claims?
4. What does "joint and several liability" mean to my business?
5. What is my company's exposure if another member of my self-insured group has a claim?
6. Can a claimant sue my company for the full cost of a claim?
7. What liabilities does my company have if I leave my self-insured group?
8. What are the legal requirements of leaving a self-insured group?
9. Will I need to reinsure any costs related to claims that occurred while I was part of the self-insured group?
If the answers to these questions make you uncomfortable, then it may be time to reconsider how you approach your small business insurance needs. Even the SIIA concedes that SIG plans aren’t the best option for every employer:
“Since a self-insured employer assumes the risk for paying the health care claim costs for its employees, it must have the financial resources (cash flow) to meet this obligation, which can be unpredictable,” SIIA explains. “Therefore, small employers and other employers with poor cash flow may find that self-insurance is not a viable option. It should be noted, however, that there are companies with as few as 25 employees that do maintain viable self-insured health plans.”
Check out this video on self-insured group plans and decide for yourself if it's right for your small business: