Self-Insurance is becoming increasingly popular as employers seek ways to offer insurance benefits to workers. The rising cost of traditional health insurance prompted the creation of this alternative.

Basically, a person enrolled in a self-insurance program pays a set amount each month, just as if they were paying an insurance premium. Instead of paying that money to an insurance provider, the money is put into a pool. The money is then drawn out as needed to pay for the doctor’s visits, medicine and other covered expenses of the members. Usually, an administrative services only company or a third party administrator is hired to handle the paperwork.

As you can see, there must be a large participation for the program to work. The idea is that most people pay in more in premiums than they spend on claims - the same idea that makes an insurance company able to make a profit.

There are some downfalls. The self-insurance program usually caps the amount paid out for a catastrophic illness at a lower amount than an insurance company. The program will typically pay an additional amount for insurance to pick up at that point. Another potential issue is that the program depends on the overall good health of the participants. If a small percentage of the participants face serious illnesses, the pool of money can be seriously depleted putting the entire program at risk.