Self-insurance plans can provide several advantages for companies with stable cash flows and a pattern of predictable claims. The employer assumes full risk for employee claims but can use all plan funds until claims are paid. Because the company holds on to its money until claims are paid, this gives a cash flow advantage, allowing the company to build more savings, instead of paying premiums in advance. These funds become working capital, a source of investment, rather than a monthly premium. The time lag from when claim checks are issued until they clear the plan's checking account provides another source of investment income. Another advantage of self-insurance plans is the control over the plan's design and flexibility. Such plans are exempt from many state-mandated insurance plans, such as alcohol and drug-treatment programs, allowing for further cash savings through reduced claims. Exemption from state mandates also allows companies to implement cost containment measures smoothly. Finally, self-insurance plans can typically realize a two to three percent savings because they are exempt from taxes on premiums. For more information, contact an insurance specialist.
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