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

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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.
    Department of Economics, Carlos III University, Madrid.)

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.

Suggested Citation

  • Roger Feldman, 2012. "Why Do Employers Self-insure? New Explanations for the Choice of Self-insurance vs. Purchased Health Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 37(4), pages 696-711, October.
    • Handle: RePEc:pal:gpprii:v:37:y:2012:i:4:p:696-711
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    Cited by:

    1. Chang Mu-Sheng & Chen Jiun-Lin, 2020. "Does Captive Insurance Improve Firm Value? Evidence from S&P 500 Companies," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 14(1), pages 1-15, January.
    2. Dalton, Christina Marsh & Holland, Sara B., 2015. "Why Do Firms Use Insurance to Fund Worker Health Benefits? The Role of Corporate Finance," MPRA Paper 61952, University Library of Munich, Germany.

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