Self-insurance option gets attention, has risks

NEW YORK (AP) — Self-insurance is getting more attention as small businesses consider their benefit options and controversy grows about the trouble-plagued government health insurance website.

Under self-insurance, a company pays for all or part of employees' claims. It can give businesses significant savings but can also put companies with shaky finances at risk.

Small businesses must consider whether they'll be able to afford to pay employees' health claims over an extended period, Michael Ferguson, president of the Self-Insurance Institute of America, an industry group, said Thursday at a hearing about self-insurance held by the House Subcommittee on Health and Technology. A survey by the Kaiser Family Foundation has found that 16 percent of firms with three to 199 workers have self-insurance.

Companies can buy what's called stop-loss insurance to cover catastrophic illnesses, but that insurance offers only limited reimbursement, Ferguson said.

"If you are not prepared to cut checks to pay providers, you should not be self-insured," he said.

But there are success stories. Self-insurance has saved Sheffield Pharmaceuticals more than $400,000 over four years, or 19 percent, of what it would have paid for traditional insurance, CEO Thomas Faria told the committee. The New London, Conn., company, with $30 million revenue, insures 75 workers and their families.

One reason self-insurance can be cost-effective is because traditional insurance companies pass their marketing costs onto customers.

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