Many mid-market employers are becoming increasingly concerned regarding the rising costs of workers compensation coverage in the hardening insurance market. These cost increases combined with uncertainty over the magnitude of cost increases related to implementation of the Patient Portability and Affordable Care Act (aka Obamacare) have employers scrambling to identify alternatives to reduce cost going forward.
Often, early cost-saving discussions focus on moving to a self-insurance program for workers compensation coverage. Few mid-market companies have the risk appetite or financial capacity to become a qualified self-insurer for workers compensation. However, there is a multitude of partially self-funded group captives, high deductible and retrospective rating insurance plans available that may provide mid-market employers the opportunity to lower their Total Cost of Risk (TCoR) and reduce the cost impact of swings in the traditional workers compensation market.
While there are significant advantages to self-funding all, or just a portion of an employer’s workers compensation claims, the decision-maker needs to fully understand the risk exposure and long-term commitment being made when moving to a partially self-funded program. In addition to determining the per occurrence and aggregate retained loss limits, the employer will be faced with decisions regarding selecting and managing third party providers who are required to support a self-funded program (i.e. claims adjustment, safety and loss control programs and actuarial services). The employer must also consider the level of internal resources necessary to support the administration and accounting for payments under the program. Lastly, the employer will have to negotiate and establish cash collateral or letters of credit with the insurer to adequately fund the liabilities of the program in future years.
A critical factor in moving to a self-funded plan is for the employer to commit to a robust safety and loss control program featuring accountability throughout the organization to aggressively manage claims and reduce cost.
Finally, it is important to note this decision should be made carefully and deliberately, and not as a reaction to a bad renewal quote. Proper review and analysis of the options available for consideration often requires up to six months.
If you would like to learn more about workers compensation self-insurance program design and potential cost savings please feel free to contact me at 732.395.4251 or asica@thealsgroup.com.
