Self-Funding LTD Issues

Question 1

Self-Funding LTD Issues

Benefits to Employer of Self-Funding LTD

Answer 1

• Improvement of cash flows
  
  • Ability to use funds normally provided for insurance company reserves
• Save costs
  
  • no state premium tax
  • Elimination of insurance carrier’s risk charge

Question 2

Self-Funding LTD Issues

Implications to Employer of Self-Funding LTD

Answer 2

• Loss of third party guarantee for EEs
• Volatility in claims
  
  • Budget for fluctuations and assume risk that overall liability is higher than expected
• Economic cycles
  
  • LTD claims are tied to overall economy
• EE Relations
  
  • Any claim suit is against ER
• Accounting Regulations
  
  • ER must recognize liability for self-funded LTD on books
• Tax Risks
• Requires admin and financial resources from ER
• Premium expenditure for fully insured LTD is stable and budgetable