The Pros and Cons of Self-Insuring

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The Pros and Cons of Self-Insuring

We have had several questions about the benefits and disadvantages of potentially self-insuring.  Below are some questions and answers on self-insurance that you would want to explore with senior management. While this is just a quick review of some of the issues, we think you will find the following considerations helpful.

What is the risk?
$250,000 for each heart attack occurrence under the legislation.

What is the financial cost to transfer the risk to the Trust?
Nothing!  Your cost is 100% reimbursable by DOLA.

What is the initial cash outlay that gets reimbursed?
The calculation is the total number of full-time professional firefighters multiplied by $175. So for example, if your district has 50 full-time professional firefighters, the total initial cash outlay is $8,750 (50 firefighters x $175 each = $8,750).

Why do organizations choose to self-insure?

The main reason to self-insure would be to save money. However, in this case it’s arguable that you would not save any money by self-insuring because now, your out-of-pocket costs are 100% reimbursable by DOLA. Additionally, when you choose to self-insure, you are actually turning a “no risk” situation into a potential $250,000 risk.

Things to consider about DOLA:
  • There are currently no clear provisions under DOLA’s filing instructions on how self-insured entities would get reimbursed.
  • DOLA is asking for “proof and paid receipts of actual cost,” so other than after the benefit has been paid, it’s hard to imagine how those would be determined.
  • We estimate at least 40+ staff hours in trying to figure it out and several months of going back-and-forth with DOLA.
  • Probably another 40+ staff hours dealing with a claim due to the vagueness of the details in the statute when you do have a claim.
  • Most every claim would have the potential for litigation where a participant did not read the intent of the legislation the way the employer would.

As you can see, self-insuring might be a classic example of how to take something really simple and making it more difficult and complicated than it needs to be.

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