It is often said that “self-insurance” is an oxymoron. Why? If it is, what are the implications for a government that is permitted

 It is often said that “self-insurance” is an oxymoron. Why? If it is, what are the implications for a government that is permitted to recognize self-insurance premiums as a general fund expenditure when paid to an internal service fund?

In what way must a government account for premium revenue differently if it accounts for self-insurance in an internal service fund rather than in its general fund?

Solution

Self-insurance is an oxymoron
The term "self-insurance" is an oxymoron.
Self-insurance is a method that is widely prevalent in government organizations, where it is carried out within the government rather than via private sector enterprises or people (McDonnell et al., 1986, para.2). It entails a government establishing a fund to cover its spending and using any surplus to subsidize the expenses of other departments or public services." The term "self-insurance" is not a popular business term, although it is used often in the insurance and risk management industries. Insurance is a type of risk management, and self-insurance is also a type of risk management.

The implications for the government

The ramifications of self-insurance include that under self-insurance, the government will not be reliant on commercial insurance firms to provide insurance for their operations, but will instead rely on the surplus in their service fund to cover the insurance expenses incurred in conducting their operations. This is especially crucial in a nation where there are few or no private insurance providers. In the case of a problem with insurance firms, the government can finance its citizens' insurance requirements. It is also worth noting that governments frequently employ self-insurance to safeguard the people from financial crises and to avoid a complete lack of insurance coverage for their citizens.

Reasons, why a government may account for premium revenue differently if it accounts for self-insurance, are in an internal service fund.

The reason for this is because, in the case of self-insurance, the government will be responsible for the premiums themselves and will not be relying on external companies for them. This means that governments will need to account for premium revenue differently in their service fund. For example, a government with a service fund may need to account for premiums differently than an insurance company because the premium revenue will be spent on the government services, and additionally, there is a need for the surplus to be invested at a higher rate to ensure that it can cover future losses. By comparison, if the premium revenue is used to provide insurance to the public, the amount of capital required to secure future losses would be lower than the premium revenue.

References

McDonnell, P., Guttenberg, A., & Greenberg, L. (1986). Self-insured health plans. PubMed Central (PMC). Retrieved October 25, 2021, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4191537/