Self-Insurance Cuts Health Care Costs

By Stuart, Peggy | Personnel Journal, July 1992 | Go to article overview

Self-Insurance Cuts Health Care Costs

Stuart, Peggy, Personnel Journal

Bob sits in his office and looks out over his panoramic view of the company parking lot and ponders what to do. He has just received notice that his company, Acme Tool and Die, must pay 30% more for health insurance for its 512 employees than it did the previous year.

This comes after three consecutive years of increases exceeding 20%. That means for every $100 Acme spent for health insurance in 1989, the company now is paying more than $173--in spite of Bob's diligent efforts to provide a wellness program for Acme's workers: a smoke-free workplace, lunchtime aerobics and weight-control classes, and so on. This program has helped, he's sure, because colleagues from neighboring companies have experienced even greater increases in health care costs. In spite of his efforts, Bob is on the hot seat, facing displeasure from employees, the stockholders--and the CEO.

Bob isn't alone in his quandary. Health care costs in the U.S. have performed a lift-off in recent years that would make NASA envious. In 1989, we spent $2,354 on health care for each man, woman and child in the U.S. That's 85% more than France and 158% more than Denmark. In fact, we spend more on health care than any other country in the world.

You get what you pay for, right? Not in this case. We have one of the shortest life spans and one of the highest infant mortality rates of any industrialized country. This was already the case before the recession hit, with its downsizing and bankruptcies, its rising ranks of the uninsured, and the increased burden on the insured, as providers passed along to us the costs of providing emergency care to people who can't pay and have waited too long to see a doctor. Such factors as increased litigation or injuries resulting from crime have contributed, as have the high administrative costs associated with a privatized health care financing system--11% to 12%, as compared with 3% for Medicare and only 1% for the Canadian public health insurance system.

Bob could wait for President Bush and Congress to find a solution and agree on it. Somehow, though, he doesn't think his company can wait that long. He knows he must find a solution before the increases come again next year.

A solution that attracts increasing numbers of companies--because it addresses the administrative costs and some other aspects of the problem--is self-insurance. James A. Kinder, executive VP of Santa Ana, California-based Self-Insurance Institute of America, says that approximately 60% of the employers that have 100 employees or more use some type of self-insurance. "Now we see these programs used by companies having as few as 20 workers," he says.

An organization that switches from traditional health insurance takes on some or all of the expenses--and risks--of providing health care for its employees. How much of the risk it can assume depends on such factors as its size and the demographics of its population.

Some larger companies are entirely self-funded, which means that they don't pay outside insurance, but pay premiums collected from employees, along with the company's contribution, into a fund set aside for that purpose. Smaller companies or organizations unwilling or unable to assume that much risk may elect to purchase reinsurance, which covers health care expenses beyond a set amount. There are two types of reinsurance:

* Aggregate stop-loss pays if all claims from the company exceed the anticipated amount by a certain percentage

* Specific stop-loss covers claims of an individual exceeding a set amount.

"Large organizations aren't really taking a risk when they self-insure, because they insure based on their own experiences," says Linda Averack, consultant for Marietta, Georgia-based Magnus Software Corporation. Averack supports processing for self-insured clients and trains companies to use health care benefits software. "Self-insurance keeps money in the hands of the employer, rather than leaving it with the carrier. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Self-Insurance Cuts Health Care Costs


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

    New feature

    It is estimated that 1 in 10 people have dyslexia, and in an effort to make Questia easier to use for those people, we have added a new choice of font to the Reader. That font is called OpenDyslexic, and has been designed to help with some of the symptoms of dyslexia. For more information on this font, please visit

    To use OpenDyslexic, choose it from the Typeface list in Font settings.

    OK, got it!

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search


    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.