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Aug 24, 2022

Why Do Some Colleges Choose To Go With Self-Funded Insurance?

Why Do Some Colleges Choose To Go With Self-Funded Insurance?

Taking care of students and student-athletes is a big responsibility on college campuses. So is controlling expenses—which is why how they choose to handle injury treatment expenses and risk is a top priority.

Schools generally choose from three options when they’re deciding how risk averse they are versus how much liquidy they want:

College football game with players in red and white uniforms in the middle of a play, protected from accidents by the college’s self-funded insurance.

  1. Fulling funding an insurance plan
  2. Partially funding a plan (stop-loss)
  3. Using self-funded insurance for accidents

Today let’s talk about option 3: What is self-funded insurance, and how does it help schools control expenses?

Understanding Self-Funded Insurance and 4 Reasons Why It Helps School Budgets

Self-funded insurance is when an organization assumes the financial risk of providing insurance benefits for its members (In this case, student-athletes.).

With self-funded vs fully-insured plans, the fully-insured plan purchases insurance directly from the insurance company while the self-funded plan acts as its own insurer. A plan that’s the middle ground between the two is stop-loss, a hybrid arrangement where schools put money aside for claims and have a cap on expenses they will cover.

Here’s Why Colleges May Choose Self-Funded Insurance Plans:

Close-up shot of women’s lacrosse sticks on the ground before the start of a match. Players are covered by the college’s self-funded insurance.

1. Freedom to design their own accident plans. This allows them to customize plans to meet their needs rather than using a one-size-fits-all plan.

2. Ability to save on taxes. Self-funded plans don’t need to pay certain state insurance premium taxes.

3. Opportunity to save money on administrative tasks. Whether they use a third-party administrator or handle administrative tasks themselves, the cost is generally less expensive than through an insurance carrier. This is especially true in years when there are not a lot of accidents. Instead of paying more to transfer the risk, the schools save money by handling it themselves.

4. Opportunity to manage cash flow better. When schools work with a partner that uses cutting-edge claims expense management technology and predictive cash analysis, they can understand the life cycle of injury treatment and expenses and make sure they don’t come up short on a bad claims year. And, the school can earn interest on the cash reserve because funds are used only when claims need to be paid. Also, there is no need to pre-pay for insurance.

Handling Claims With Self-Funded Insurance—Is a Third-Party Administrator (TPA) Right for You?

Although they are acting as the insurance company to self-fund their medical expenses, many schools will use a TPA to handle the claims and help manage contribution and student-athlete premium payments. A TPA can provide a predictive analysis of the cash flow needed, make future injury predictions, and benchmark data against other organizations to help manage risk.

Rice women’s soccer player has the soccer ball while another player pursues her. She is protected by the college’s self-funded insurance.

At A-G Specialty Insurance, in addition to the accident insurance we provide to students and student-athletes at thousands of K-12 schools and colleges and universities, we also act as a TPA so that colleges don’t need to worry about handling these processes themselves. And, as a TPA, we can also help review and get discounts on claims to which schools may not have access themselves.

What If Claims Are Too Expensive and Money Runs Out?

As the middle ground between fully-funded and self-funded mentioned earlier, many self-funded insurance plans purchase stop-loss insurance to protect themselves so money loss doesn’t happen. With stop-loss insurance, you make an arrangement to pay claims up to a certain dollar amount. If you reach that figure, the carrier steps in at that point to cover claims expenses. Stop-loss premiums are generally inexpensive.

How Do the Costs Between Fully-Funded and Self-Funded Insurance Compare?

A Fully-Funded Insurance Plan:

The school pays a fixed, nonrefundable premium amount to the insurance company at the beginning of the year.

This amount is easy to budget for but does include:

  • Required benefits
  • Premium taxes
  • Claims expenses
  • Risk pooling
  • Overhead and profit
  • Administration
A Stop-Loss Plan:

The school chooses to pay for a stop-loss plan:

  • Because it is only covering between the school’s cap figure and the $90,000 catastrophic limit, the insurance company is covering a much smaller risk that’s reflected in lower premiums.
A Self-Funded Insurance Plan:

The school has fewer fixed costs and pays only for:

  • TPA administration
  • Variable claims expenses

You can see how the self-funded plan has more room for cost savings from variable claims expenses.

Is Self-Funded Insurance a Solution For Your School?

If your school is looking for a way to control expenses, then self-funded accident insurance may be a good budget solution—especially when paired with a TPA like A-G Specialty Insurance to manage the claims and other administrative tasks.

Our cutting-edge claims technology is provided through EGBAR, our Efficiency Generating Business Automation Resource, and it’s a critical difference between our programs and those of our competitors. EGBAR provides benchmarking data, and year-over-year data needed for cash flow analysis and predictive analysis Our expert program managers live and breathe sports. In fact, many have joined us after working in sports programs, college finance, or pursuing athletic careers. So you can relax knowing that we are familiar with your questions and concerns and can get you the answers and help you need.

Ready to find out more about self-funded accident insurance and how we can help? Please don’t hesitate to reach out for a no-obligation quote.


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