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Almost all firms have taken measures to reduce the employee health claim cost component of health care expense. Many large firms have also been able to reduce the transaction costs of health insurance by changing to partial or full self‐insurance. For smaller firms the self‐insurance decision involves careful weighing of cash flow and tax considerations against risk consequences. This paper analyzes the risk trade offs inherent in the self‐insurance decision. A case study illustrates how cash flow and tax considerations affect the cost of partial and full self‐insurance for a medium size firm.

Financial reporting standards require that many future‐oriented expenditures for intangibles, such as development costs and personnel training, be expensed in the current period. These standards cause such expenditures to be indistinguishable from expenditures for current revenues, and penalize the earnings of firms making future‐oriented expenditures for intangibles. The current focus on earnings encourages firms to sacrifice long‐term economic objectives for higher reported earnings. This paper analyzes the need for improved reporting for future oriented expenditures. Improved accounting for future‐oriented expenditures would enhance the market’s ability to value stocks, improve company performance, and benefit investors and creditors.