Does Self-Insuring Voluntary Employee Benefits Makes Sense?

A plan sponsor can self-fund the coverage a lot less expensively than insuring through a carrier…………..

Voluntary employee benefits oftentimes include cover for specified diseases and limited pay policies for such things as heart/stroke, accidents, cancer, etc. Historically these types of policies have relatively low loss ratios.

For example, one cancer company’s financials we looked at this morning shows a 55% loss ratio on their entire book of business. The remaining goes to expenses, profits, and reserves.

These policies are lucrative. Insurance agents earn high commissions. For example, a first year cancer insurance policy can earn an agent up to 65% commission. Residual commissions are lower which can lead to churning of policies by commission driven insurance agents who regularly encourage a change in insurance policies to earn high first year commissions again.

Would it be wiser for a plan sponsor to self-insure these limited policies? For example, an in-hospital daily indemnity policy paying $100 per day for 10 days is a potential $1,000 benefit to the beneficiary. An average hospital length of stay is around 4 days, reducing the benefit realized to $400.

Statistics indicate there are 236 hospital days per 1000. Therefore a group of 500 plan members will experience 118 hospital days. Assuming an average 4 day stay, total benefits paid would be $11,800, or $1.96 pmpm.

Lets assume a typical $100 daily indemnity policy monthly premium is $20. Assuming a participation of 25%, 125 plan members would pay a total of $30,000 per year. A plan sponsor can self-fund the coverage a lot less expensively than insuring through a carrier. Or a plan sponsor can duplicate the fully insured premium and use realized profits towards other benefit offerings.

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