What is the difference between self-insurance and private insurance?

The distinction between self-insurance and private insurance is defined by how claims are handled and who bears the financial responsibility. In self-insurance, employers take on the risk by directly paying for employees' claims rather than transferring that risk to an insurance company. This means that the employer sets aside funds to cover potential costs associated with work-related injuries or illnesses. This approach allows for greater control over the claims process and potential cost savings, but it also requires the employer to have sufficient financial resources and an understanding of managing claims.

In contrast, private insurance involves purchasing a policy from an insurer, which assumes the financial risk associated with worker injuries. The insurer manages the claims process and pays out benefits to injured workers, in exchange for premiums paid by the employer.

Understanding this difference is crucial for employers when deciding how to handle workers' compensation coverage, as the approach can significantly affect their financial responsibilities and administrative processes.