Self insured healthcare plans refers to plans in which a single group, usually a large employer, pays the costs of healthcare for those they are covering out of their own assets.  To do this the group calculates the predicted costs of health coverage for the covered individuals and sets aside that money themselves rather than pay premiums to an insurance company which otherwise would bear the risk.  Self insurance plans usually contract with a third party administrator, almost always an insurance company or HMO, that manages the back office settlement of transactions with providers and gives the insured access to the reduced rates already negotiated by the insurance company with providers.

Normally, self insurers protect against catastrophic risks with underwriting by the re-insurance or wholesale insurance market. The predictable healthcare costs are retained and self-insured, forming a first or "working" layer of cover, and a stop-loss or stop-gap policy is purchased from the commercial insurance market. The commercial insurance market then pays for losses above the specified self-insurance limit per loss, thereby stopping the cost of losses to the self-insured above the retained values.

Groups with pools large enough to self insurer go this route in order to save money on costs since it is cheaper to pay only the provider and administrative costs and not pay the insurance company profit margin.  The self insured also get to keep any profit they make on investments funded with the reserves.

Small groups and individuals can’t really self insure effectively since the risk pools are not large enough.

ERISA (Employee Retirement Income Security Act of 1974) gives employers the right to set up self insured healthcare plans.  Self insurers have a great deal of flexibility in deciding what their plans cover and what programs, such as wellness programs, they add.

General motors has a legacy of healthcare costs through it’s self-insured system for both current employees and retirees.  In 2004, Bruce E. Bradley, director of health care strategy and public policy at General Motors, said that ''the increase in health care costs continues to be a very serious problem, especially for companies competing in the global marketplace.''  General Motors is the second largest payor of medical expenses in the United States behind the federal government.

CalPERS spends $4 billion a year to purchase health care for 1.2 million members. CalPERS is the nation's third largest purchaser of health benefits in the United States, providing health benefits to State and public agency employees, retirees, and their dependents.  CalPERS offers a number of different plans administered by several different companies including Blue Shield and a special Medicare plan.

The Reformed Church of America provides insurance for approximately 1,700 clergy and lay people, both active and retired, around the country.  The plan is administered by United Health Care for medical and Medco for drug claims.  Includes health and wellness programs.  Spent approximately $13 million in 2007 for claims, drugs, re-insurance and administration.

Business Model:

Self-insured healthcare plans are already in place in medium and large companies around the country.  They allow companies to save the profits that insurers add to their premiums, to design custom tailored plans, and to keep money made on the reserves.  Insurance companies make money administering these programs, a core competency.

Assumptions: 

1. Groups that self-insure must have a large enough risk pool to be able to reliably predict year to year expenses.
2. It is cheaper to “do it yourself.”

Speaks to multiple leverage points.

• Risk sharing at the micro level balanced against risk management at macro level
• Large pools with multiple employers are being carved into smaller “puddles.”
• Even large employers need re-insurance to cover large, unexpected costs.  This brings the puddles back together into larger pools, at least for the extremes.
• Potential  of new alliances to create risk pooling or collective purchasing/action
• New alliances, such as unions, are getting into self-insurance.