Why Do Employers Self-insure? New Explanations for the Choice of Self-insurance vs. Purchased Health Insurance

Roger Feldman ()
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Roger Feldman: Division of Health Policy and Management, University of Minnesota, 420 Delaware Street, SE, MMC 729 Minneapolis, MN 55455, U.S.A.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2012, vol. 37, issue 4, 696-711

Abstract: This paper proposes that an employer's choice of self-insurance vs. purchased health insurance can be explained by a trade-off between administrator moral hazard, the incentive for third-party administrators to be inefficient managers of self-insured employers’ medical claims and employer moral hazard, the insured employer's failure to invest in reducing health risks among its workers. These explanations have not been analysed in the literature but they are broadly consistent with data and they can explain the increasing popularity of self-insurance over the past 10 years.

Date: 2012
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