Self-insurance FAQ

Self-insurance — How does it work?

Self-insurance (also called administrative services only, or ASO) can save your company a great deal of money for low-risk insurance areas. These FAQ will help determine whether self-insurance is the best option for you.

How do I save money?

There are several ways that Self Insurance can save you money:

  • Insurance companies charge a higher administration fee compared to self-insured plans.
  • Traditional Insurance plans pre-fund annual inflation using 15% for health claims and 5% for dental claims.   Self-insurance is based on the actual inflation rate.
  • Traditional insurance plans commit clients to non-refundable premiums, regardless of claims. The insurance company keeps any extra money at the end of the year. With self-insurance, your company pays only monthly claims; there is never excess premium. Therefore, at year end, extra money is kept by you not by the insurance company.
  • Traditional insurance requires rate increases every year due to projected inflation. With self-insurance, the fees are fixed for three years and costs are based on actual claims.

What if one of our employees has really high usage?

A portion of your insured health rates is used to protect against catastrophic claims such as high costs drugs and Out of Canada claims by your employees. This is called a pooling level. Pooling levels are either $5000, $7500, or $10,000, depending on the size of your group. The pooling level costs are built into your insurance premium.

Pooling levels are insurance companies’ way of insuring themselves. If an employee has very high usage and they reach the pooling level, the insurance company will step in to cover the cost. The insurer will exclude these high claims from your claims experience to ensure that an individual’s high claims do not dramatically affect the renewal rates of the rest of the group.

The pooling levels with self-insured plans are offered at a much lower cost but still offer the same level of risk mitigation as fully insured plans.

Will our employees enjoy the same coverage?

Definitely. Self-insured plans have the exact same coverage as the traditional plan, including electronic drug cards and online access to claims history. Self-insured systems are readily recognized by pharmacies and dentists.

What about life insurance and long term disability?

Self-insurance covers only health and dental claims, which account for the majority of premium. Life and LTD coverage would continue with a traditional insurance carrier while the health and dental components would move to a self-insured plan.

How do we fund this plan?

Under traditional insurance plans, you pay a set premium each month. Under self-insurance, you pay only claims—and fees.

This can make it difficult for employers to budget because the amount can fluctuate every month depending on the amount of claims. However, a budgeted self-insurance plan allows you to pay a specified amount every month. We would determine the average amount of claims and that amount would continue to be paid each month. The total amount would be reconciled every three months to determine if there is a major deficit or over accumulation. At year-end, the funds would be owned by you, not the insurance company.

Contact us to learn more about whether self-insurance is the best option for your company.

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