What is self-insured workers’ compensation? Workers’ compensation is a type of insurance that helps employees who get hurt or sick because of their job. It pays for medical treatment and part of the lost wages while the worker recovers. Most businesses buy workers’ comp insurance from an insurance company. But some businesses choose a different way. They decide to become “self-insured.”
Self-insured workers’ compensation means the business does not buy insurance from a third-party company. Instead, it sets aside its own money to pay for workers’ comp claims. When a worker is hurt on the job, the employer uses that money to pay medical bills, wage replacement, and other benefits.
This method is legal and allowed in many states, but only under certain rules. Not every business can do it. The company must be financially strong and able to handle all the costs that come with a workplace injury.
Why Do Companies Choose to Be Self-Insured?
There are a few reasons why a business might want to handle its own workers’ comp claims.
First, it may save money. When a company buys insurance, it pays premiums to the insurance carrier every year. Over time, these costs add up. If the company has few claims or no major accidents, the insurance company keeps the money. With self-insurance, the company keeps that money and only spends it when there is a claim.
Second, self-insurance gives the company more control. The business can choose how to manage claims. It can work directly with doctors, injured workers, and claims adjusters. This may lead to faster treatment and fewer delays in benefits. It also helps the company manage risks in a way that matches its values.
Third, large companies often have the tools to manage their own claims. They may have their own human resources teams, legal departments, or safety experts. These teams can handle injury reports, paperwork, and medical follow-ups without outside help.
What Are the Requirements to Be Self-Insured?
Not all businesses can decide to self-insure. Each state has rules that say who can and cannot use this option. Most states require that companies:
Show strong financial stability
Meet a minimum amount of net worth or annual revenue
Prove that they can pay for large claims
File an application with the state’s workers’ comp agency
Post a security deposit or bond in case they cannot pay future claims
Some states also require the business to be in operation for several years before applying. This helps show the state that the business is reliable and trustworthy.
In many cases, the state will also review the company’s safety records. If the company has a high number of workplace injuries or a poor safety history, the application may be denied.
Once approved, the business must manage its own workers’ comp program. That includes:
Accepting and reviewing injury claims
Paying medical bills
Paying wage replacement
Keeping detailed records
Submitting reports to the state
How Do Self-Insured Companies Handle Claims?
When a worker is injured, the process is similar to any other workers’ comp case. The injured employee tells their supervisor or manager. Then, the employer investigates and files a report. The company must make sure the worker gets medical treatment quickly.
Since the business is self-insured, it uses its own money to pay for everything. Some companies create a special team inside their HR department to handle this. Others hire a third-party administrator (TPA). A TPA is a private company that helps with claims management. They handle the paperwork, talk to doctors, and make sure payments are made on time.
The self-insured employer must follow the same rules that insurance companies follow. They must:
Approve or deny claims within the required time
Send legal notices to the injured worker
Keep the worker informed about their benefits
Provide medical treatment without delay
If the company does not follow the law, it may be fined or lose its self-insured status.
What Are the Benefits of Self-Insured Workers’ Comp?
For companies that qualify, there are several advantages to being self-insured:
Cost savings – If the company has few injuries, it can save money by not paying insurance premiums.
Better control – The company can manage claims directly, making sure injured workers get care quickly.
Tailored care – The employer can choose trusted doctors and medical networks to treat injured employees.
Long-term planning – Instead of guessing premium rates every year, the company can build a long-term budget.
Improved workplace safety – Self-insured companies are often more focused on injury prevention, since they pay out of their own funds.
What Are the Risks of Being Self-Insured?
Even though self-insurance has benefits, it also comes with risks. Here are some of the biggest concerns:
High costs from major injuries – One serious injury can cost hundreds of thousands of dollars. If the company does not have enough money set aside, it could be in trouble.
Unexpected claim spikes – A sudden rise in injuries can create financial stress.
Legal responsibilities – The company must follow all workers’ comp laws. This can be hard without legal help.
Administrative burden – Managing claims takes time and staff. This adds pressure to HR or finance departments.
State audits and reporting – Most states require self-insured employers to file regular reports and go through audits. This can be time-consuming.
To reduce risk, some self-insured companies also buy “excess insurance.” This is a backup insurance policy. If a claim costs more than a certain amount, the excess insurance will cover the rest. This protects the company from very large or unexpected claims.
Are There Different Types of Self-Insurance?
Yes, there are a few types of self-insured arrangements:
1. Individual Self-Insurance:
This is when a single company manages its own workers’ comp claims. It must meet all the financial and legal requirements on its own.
2. Group Self-Insurance:
In some states, smaller businesses can join together to form a self-insured group. This is common in industries like construction or healthcare. The group pools their money to cover claims. This helps spread the risk.
3. Public Entity Self-Insurance:
Government offices, school districts, and cities often self-insure. These public entities usually have enough money to manage workers’ comp on their own.
What Is the Difference Between Self-Insured and Fully Insured?
When a company buys a workers’ compensation insurance policy, it is “fully insured.” This means:
The company pays a set premium each year.
The insurance company handles all claims.
If there are a lot of claims, the insurer still pays.
The company does not take on the risk.
When a company is self-insured:
It does not pay premiums to an insurer.
It uses its own money to pay claims.
It must manage claims or hire someone to help.
It accepts full risk for injuries and costs.
Self-insurance works best for large companies that can handle those risks. Smaller companies usually stay with traditional insurance.
How Do You Know If a Company Is Self-Insured?
Workers may not always know if their employer is self-insured. But there are ways to find out:
Ask your HR department.
Check your employer’s injury reporting process.
Look at workers’ comp forms to see who handles claims.
Contact your state’s workers’ compensation agency.
If your employer is self-insured, your benefits should still be the same. All workers are protected under state workers’ comp laws, whether the employer is insured or self-insured.
What Should Workers Know?
If you work for a self-insured company, you still have the right to:
Report a work injury or illness
Receive medical treatment
Be paid for lost time at work
Return to work when recovered
File a complaint or appeal if your claim is denied
These rights are protected by law. If your employer does not follow the rules, you can file a complaint with the state. Some workers also speak with a workers’ comp attorney to help with complex claims.
Always report injuries quickly and follow your employer’s steps. If you are unsure, ask questions and keep a copy of every form or letter you receive.
Conclusion
Self-insured workers’ compensation is a system where businesses pay for work injuries out of their own funds. They do not buy insurance from an outside company. This option helps big companies save money and control the process, but it also comes with risk and responsibility.
If a company wants to be self-insured, it must apply with the state, show financial strength, and follow strict rules. Once approved, it must manage all claims fairly and legally. Workers should still receive full benefits, even if their employer handles the claim directly.
This type of setup works best for large businesses with good safety programs and enough money to cover claims. Smaller businesses usually stick with traditional insurance.
Whether a company is insured or self-insured, the goal of workers’ compensation is always the same: to protect workers after an injury and help them return to work safely.
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