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I think theoretically ERISA and Code would let you self-insure disability. The problems are business issues. The one mentioned above, i.e., lack of market on sell-side, is relevant, but my guess is an even bigger issue, and one that partly accounts for lack of market, is the benefit security. Self-insured health plans are dependent on continued funding by employer and employee contributions. Certainly, if the employer becomes insolvent, or is sold, and its health plan goes away, there may be a hiccup with paying runout claims, but the employees move on and get other coverage. If you are long-term disabled, that could be it--you may never work again. If, e.g., that happens to you at 30, the employee needs to know that he or she will receive LTD payments for 35 years, month-in, month-out. Insurance companies are long-term players, and are regulated by states so that they cannot shed their obligations, and even in bankruptcy there are guarantee funds. So the obligor of the LTD is solid and long-term. And LTD always has a waiver of premiums once employee becomes disabled. So with insured LTD, if the employee becomes disabled, he or she leaves with a paid-up commitment from the insurer to pay benefits until age 65 or 66 (assuming the LTD recipient doesn't get better ), and that promise is not dependent on the longevity, financial health, or willingness of employer to continue plan. It's a paid up obligation of the insurer from first payment to last.

Thanks. Its been so long. I was in Compliance for quite a few years and now just answering the phone in a call center til I retire ( 458 days) but whose counting.

I have a plan that is similar to this - the trick is that none of the people are HCE's.