July 1, 2004
Offering health insurance for employees used to be simple. Corporations would receive proposals from a number of insurance companies. They would pick the best deal. Those days are over. Now, when a corporation decides to offer health insurance to its employees, it is presented with a bewildering array of alternatives. It can be difficult even to decide among them, as the comparison usually is not apples to apples. One of the most attractive options today, at least for large corporations, is self-funding. In a self-funded plan, a corporation essentially insures its employees itself. Typically, the corporation purchases reinsurance to cover the losses that exceed an agreed-upon amount. It also enters into a contractual relationship with an administrator—typically an insurance company—to perform the functions that insurance companies used to do.