Self-Insurance Phenomenon Kills Company Budget
Self-insurance was an area I used to not cover as well as it should have been covered that when I had written articles, manuals, or presentations.
I coined the term “Self-Insurance Phenomenon” after hearing these comments and auditing self-insured files for private companies and governmental entities. This is one area that I have become concerned about in the past few years.
A large percentage of our clients that have chosen self-insurance and have TPA’s (Third Party Administrators) handling the claims seem to think that they have found some sort of safety net vs. using traditional insurance policies. The expression “We are with a TPA, so we are not really paying insurance premiums” is one of the phrases that employers have said to our company personnel often. This is a grave mistake, as the TPA is spending directly from the employer’s budget, sometimes without enough oversight.
TPA’s also charge a fixed amount per year to handle the claims that must be in the calculations to compare TPA vs. Non-TPA insurance decisions. Under audit, we have found very poor claim handling from TPA’s that are not usually found in the general WC claims environment. This is not to say that all TPA’s are bad. Reviewing the claim payouts very often is recommended.
A twist of the same type of thinking is “We have a large deductible, so the insurance carrier only pays after the claims reaches a certain level of $.” The insurance carrier still reports your claims to NCCI under a large deductible. As far as NCCI is concerned, you are not self-insured when you are in a large deductible program.
Another comment we often hear from self-insureds is, “we only pay the TPA $X per claim per year to handle our claims.” As covered in my upcoming manual -there are many charges that a TPA adds in that regular insurance carriers cover in their premiums charged. We have seen the extra charges to be up to 5,000% of $X.
