A self-insured plan is one in which the business pays the actual claims and essentially assumes the role of the insurance carrier in terms of managing risk. Many large companies offer at least one plan that is fully self-insured because they have a large pool of covered employees and also have the cash reserves to protect against a spike in claims volume or amount.
Historically, self-insurance has been perceived as far too risky in the small business market for a number of reasons. Small businesses typically have less cash on hand and can’t weather a dramatic increase in costs as easily. Also, claims data is very hard to come by in small business so it’s difficult to judge if self-insuring is worth the risk because you don’t even know the risk! Most small businesses also lack the manpower in-house to actually review and process claims so they still pay an insurance company to act as a Third Party Administrator (TPA). Though the business is paying the claim, the insurance company will actually process it accordance with the plan documents and ensure that all protocol is followed.