Is there more risk for smaller employers to partially self-insure their health plan than larger employers?


Employers with less than a couple hundred employees have long thought self-funding their medical plan was way too risky.  But, actually the opposite is true.    There is less financial risk for smaller employers because the total employee headcount (for example 70 employees) is not a large enough group or valid sample size to base future pricing on.  This is called credibility. The credibility of a 70 person group is only 20%, which protects or insulates that employer from excessive renewal rate increases following a bad year.  In a smaller group, the renewal is based upon the experience of the insurance carrier’s book of business.  We often see the risk of excess expense to be much greater if fully-insured, especially after being partially self-insured for several years and looking back at what the group would have paid if they had remained fully insured.