How do I self insure?

May 2010

"I've heard that companies often save money on employee health insurance by paying smaller claims directly. That sounds interesting, but how does it actually work? Will doctors and hospitals agree to send their bills to us?"

Mike: When companies self insure, they arrange for an outside firm--typically an insurance company that's already dealing with doctors, hospitals, and labs--to administer the program. The administrator pays all the bills and then submits a consolidated bill for payments and processing fees.

This arrangement works best if you have healthy employees who ordinarily spend much less on medical expenses than you'd pay for conventional insurance. You can also buy regular insurance coverage that kicks in for large medical expenses (say, in excess of $20,000 per year per employee).