The cost of health insurance keeps rising. As employers look for ways to cut costs, many businesses are turning to alternative methods of risk transfer. Self-insurance, as well as partial self-insurance and captive insurance, can give companies increased control over their health care costs. It can also help businesses take control of other major insurance expenditures such as your workers’ compensation or business liability insurance.
Self-Insurance: Taking on Risk to Increase Reward
Self-insurance is a fairly simple idea. Instead of purchasing insurance through a third-party insurer, an organization or individual allocates funds to be used in case a loss occurs. When a company opts to self-fund its health plan, this means that the company is responsible for payment of all claims.
The upside to self-insurance is fairly evident. A self-insured organization does not have to pay premiums to a third-party insurance company. If there are few claims, or if claims are less than the premium paid, the self-insured organization sees these savings directly.
Additionally, having direct control over the claims and knowing exactly where claims are high may help self-insured companies keep costs down. For example, in the case of health care, a company can initiate wellness programs to help employees stay healthy and require less care.
This type of self-insurance may make sense for large companies with the resources needed to manage high levels of risk.
Mitigating the Risks of Alternative Risk Transfer
For many companies, self-insurance may sound very appealing, but the possibility of higher than expected claims and worst-case scenarios can make this option seem too risky. In these cases, there are multiple techniques that can be applied to mitigate the risk while preserving the benefits associated with self-insurance, including transparency, control and savings.
Many companies that decide to self-insure will realize it’s essential to purchase stop-loss insurance. This is an important policy that covers catastrophic claims, shielding a company from the extreme costs that could otherwise upset a self-funded plan.
Other models may provide a good fit for businesses that are interested in self-funding but don’t have the resources needed to make it work. Partially self-funded and captive insurance plans provide additional options that offer many of the advantages of self-funding without all the risk. These options can be ideal for smaller businesses.
Taking Control of Insurance Costs
As expenses continue to rise, businesses must be both proactive and creative to get costs under control. These methods are not exclusive to large businesses. With partially self-funded and captive insurance options, even smaller businesses can reap the benefits of alternative risk transfer.
To determine whether an alternative risk transfer option is right for your business, it’s important to perform a careful analysis of the expected savings as well as the potential risks. Contact Higginbotham insurance to learn more.