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Think You Shouldn’t Self-Insure If You’re Not Healthy? You’re Wrong.

/ October 1, 2016 October 1, 2016

I’m constantly told by employers that they looked into Self-Insurance, but that it’s not a fit for them because they’re not a healthy group.  The irony here is being unhealthy may be precisely the reason you should self-insure.

Here’s why:  When insurance companies underwrite employers, (when claims data is available) they have to use a formula that allocates anywhere from 10-15% of costs to “administrative” costs.  But when you’re self-insured, these same providers will charge you a flat rate per employee per month.

So here’s a scenario: if you have 100 employees and pay $1,000,000 in premiums, $100,000 of that costs is likely in administrative costs.  If you were self-insured, you’d be looking at roughly $40 per employee per month or $48,000.  That’s $52,000 in savings.

When you’re painting a population such as Greater Philadelphia and it’s tens of thousands of employers with one broad underwriting brush, you’re bound to make generalizations that are ripe for arbitrage.  This is just one of those cases.

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