Self-Insurance as Alternative for Small Employers

Most firms use different ways to bring down the operation costs against the backdrop of the rising cost of health. The high cost of health has prompted insurers to raise policy premiums to keep up with the rising trends. However, third-party administrators who manage self-insured plans on behalf of employers have maintained the cost of self-insurance at considerably lower rates as compared to the state-regulated insurance companies. This aspect attracts employers to the self-insured schemes to cut down costs associated with the employees’ health. Thus, small employers may opt to cover their employees through self-insurance to avoid paying high premiums charged by traditional insurers.

The other incentive that may attract small employers into self-insurance plans is the view that such schemes are not subject to the regulations as stated in the Affordable Care Act. Self-insurers enjoy tax exemptions in addition to immunity from complying with the Affordable Care Act’s parameters that require a minimum range of indispensable gains in cases involving mental health or chiropractic care.

The availability of the stop-loss insurance plan is another incentive for small employers. The policy takes care of the employees’ medical expenses exceeding the set limit. In cases where an employee incurs higher medical fees than the employer can afford, the plan pays the excess money.
However, despite the numerous benefits that come with self-insurance, small employers may find the plan less attractive due to the small number of employees in such firms. As opposed to large businesses, which have a large number of employees, small firms have a maximum of 100 employees in most cases.

This number is too small to support the spread of risk, which works well in big organizations with a large number of employees. The contribution made by employees from small firms is smaller as compared to that of their counterparts in large companies. In case one of the employees requires a huge amount of money for the treatment of a certain disease, small employers may not be in a position to raise the fees from the contributions made by the employees.

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