How Do You Buy a Self-Insured Medical Plan?


Quick Answer

With self-insured health plans, employers do not buy health insurance but take the financial responsibility for the covered employee’s health care benefits. These plans are more common with large employers, according to the Self-Insurance Institute of America.

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Full Answer

The employer sets up a trust fund for corporate and employee contributions to the plan and earmarks the money in the fund to cover health care benefits, explains the Self-Insurance Institute of America. While self-insured health plans are more common in large corporations, some companies with as few as 25 employees successfully use these plans.

When a company sets up the self-insured health plan, it has the option of administering the plan for itself or contracting with a third-party administrator, notes HealthCare.gov. The company chooses the services it wants to delegate to the third-party administrator, including enrollment, claims administration and development of a provider network.

The self-insured option is not the best choice for every company, states the Self-Insurance Institute of America. It does include benefits such as the ability to customize the plan to meet employee needs, giving the employer greater control over health plan reserves and eliminating health insurance premium taxes. Since the employer eliminates premium payments, the self-insured plan can help to improve cash flow. Employers are able to protect themselves from large claims by purchasing stop-loss insurance to reimburse the self-insured plan for catastrophic losses. Stop-loss insurance is not health insurance as the contract is between the employer and the insurance company.

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