Self-Insurance Gaining Popularity Among Small Businesses

Faced with rising health care costs, many small businesses are "dumping" traditional managed care and instead are self-insuring their employees' health care, the Los Angeles Times reports. When a company self-insures health care for its workers, it does not pay a managed care company to administer health benefits. Rather, it saves the premiums collected from employees and pays providers only when medical claims are filed. Self-insurance, up until now, has been used mainly by large multi-state employers who can better manage the risk of large claims. But with managed care premiums rising up to 20% this year, many small business are also looking to self-insurance. A recent survey by the consulting firm William M. Mercer found that 13% of employers self-funded their employee coverage last year, up from 6% in 2000. In addition to greater control over benefits and the potential for cost savings, self-insurance allows businesses to avoid a "bewildering array of state insurance regulations," the Times reports. However, switching to self-insurance carries greater financial risks, as demonstrated last month when the California-based Sunkist Growers & Packers Benefit Plan Trust went bankrupt "after it was clear that medical claims would far exceed the trust's ability to pay," forcing its 23,000 members to find new coverage. The Times reports that while "[b]ig corporations can weather unanticipated problems ... long enough for subsequent premium increases to absorb the financial blow," smaller companies "can't afford such mistakes" (White, Los Angeles Times, 2/19).