Author: Tim Barnes
Obamacare has a loophole for small businesses.
“Self-Insurance” is when a small business elects to pay for minor and routine medical care for employees and only purchases a catastrophic plan for large ailments like cancer, MS, etc. The premiums for those types of plans is often as low as 65% of the cost for fully insured plans.
The strategy works like this. The employer agrees to pay directly for health care for employees up to a stated amount. They purchase a group health insurance policy that will cover employees for expensive health care. They also pay the health insurance company to administer the plan.
As an employee, you will not know the difference unless you pay very close attention to the paper-work you get from your employer about your health insurance. The insurance ID card you get from your insurance company will look identical to a fully insured plan.
If your employer switches to a self-insured plan next year, there is a chance that your premium will not experience the same “Rate Shock” that others are expected to see. However, that is dependent on your employer.
Several employers not only pass on the cost of the catastrophic health insurance premiums to employees but they also charge employees for the anticipated costs of the amount of health care that they have agreed to pay for out of company profits.
Historically, only very large employers used the strategy known as “Self-Insurance.” The PPACA has special rules for self-insured companies. They are exempt from some of Obamacare’s mandates. Rumor has it that when Obamacare goes into effect premiums for health insurance will “sky-rocket.” According to Kaiser Health News in “Small Businesses Pursue Health Law Loophole,” smaller businesses may be tempted to use the “Self-Insurance” strategy.
If you are a small business owner and are tempted, make certain you are not blinded by the temptation of lower premiums. You are still responsible to pay the minor and routine health care costs for your employees.
Depending on how many employees you have, you could potentially be liable for thousands of dollars before the benefits from the health insurance company start. If you do not collect enough money from your employees in premium, you will need to pay those bills from your company’s assets.
If you are an employee and your company switches to a “Self-Insurance” strategy, you should not see any difference in benefits. The only negative, that I see, for being an employee of a self-insured company, is if the company fails to pay its portion of your medical bill.
Keep in mind that the fine print of the paper-work that you sign when you go to the doctor or hospital says that you understand that you are personally liable for any fees and charges. If your insurance company does not pay any portion of your bill, you will pay the charge.
If your company fails to pay their portion of your medical bills, you could end up liable to pay them yourself.
It is because of this potential problem that the “Self-Insurance” strategy has historically only been used by large companies with a large revenue stream.
Obamacare changes many of the rules for health insurance. Now that the government has had its say, the health insurance industry and consumers will have their turn to make adjustments to the new rules.
One of the adjustments that may be made by small business owners, especially after they see their renewal premium for 2014, may be to consider “Self-Insurance.”