Cost Effectiveness

Whatever method of self-insurance is chosen, there must be an ongoing review of the effectiveness of the program. This is most easily performed by setting up a computerized audit system that will both develop baseline data and perform trend analysis on the data base as more experience is gained. The data base should include the current status of all claims, the status of the trust (including liquidity and projected income), a historical breakdown of claims paid, and any data on potential but currently unfiled claims. The analysis of these data will allow the self-insured provider to compare its experience with the experience of other providers and to evaluate the cost savings of the self-insurance program over traditional third party insurance. The comparison with the cost of third party insurance is vital to establish the cost effectiveness of the self-insurance program. Without such cost-effectiveness data, it is difficult to justify the expenditure necessary to maintain the program properly. In the usual "profit-center" analysis, the self-insurance program will almost always show a net loss. It is only in comparison with the cost of alternative insurance schemes that the self-insurance program will be able to demonstrate a net savings. (If the self-insurance program does not show a net saving, it may need to be restructured.) The self insured health care provider must monitor carefully the performance of its self-insurance program if it is realize the full potential of this risk-spreading alternative.