New Light Shed on Self-Funded Health Plans

By Stephen Miller, CEBS Jun 3, 2011

In the U.S., 39 percent of employer-sponsored health plans with 100 or more participants were self-insured or funded through a mixture of external insurance and self-insurance, according to a 2011 research report, Self-Insured Health Benefit Plans, by Advanced Analytical Consulting Group (AACG) in conjunction with Deloitte Financial Advisory Services.

Large plans were more likely to self-insure than small plans, so that self-insured or mixed-funded plans covered 72 percent of U.S. plan participants, based on AACG’s analysis of health plans’ annual reports.

The researchers found that firms in relatively poor financial health were less likely to self-insure than better-performing companies. “There was no evidence of companies at risk of insolvency gambling with health expenses. If anything, we found the opposite,” noted Stan Panis, AACG principal and co-author of the report.

The research was conducted to help the U.S. secretaries of Labor, and Health and Human Services (HHS) provide reports to Congress, as mandated by the Patient Protection and Affordable Care Act (PPACA).

Health Care Reform's Impact

A separate 2011 report by the not-for-profit Rand Corp., titled Employer Self-Insurance Decisions and the Implications of the ACA, foresees a sizable increase in self-insurance only if comprehensive stop-loss policies become available widely after the PPACA takes full effect.

According to the report, new regulations under the PPACA include:

Rate bands that limit premium price variation.

Risk adjustment policies that will transfer funds from low actuarial risk to high actuarial risk plans.

A mandate that plans include "essential health benefits" as defined by HHS.

While the new regulations will be applied to all nongrandfathered, fully insured policies purchased by businesses with 100 or fewer workers, self-insured plans are exempt from these regulations. As a result, some firms might have a stronger incentive to offer self-insured plans after the PPACA takes full effect.

The research, based on data analysis, literature review, findings from discussions with stakeholders and microsimulation analysis, revealed "little evidence that self-insured plans differ systematically from fully-insured plans in terms of benefit generosity, price or claims denial rates," according to the Rand Corp.'s report.

Stakeholders expressed significant concern about adverse selection in the forthcoming health insurance exchanges attributable to regulatory exemptions for self-insured plans. "However, our microsimulation analysis predicts a sizable increase in self-insurance only if comprehensive stop-loss policies become widely available after the [PPACA] takes full effect and the expected cost of self-insuring with stop-loss is comparable to the cost of being fully insured in a market without rating regulations," the Rand researchers found.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

Is Self-Insurance for You?, HR Magazine, May 2011

Medical Loss Ratio Rules Could Boost Self-Insuring, SHRM Online Benefits Discipline, December 2010

Health Care Reform Might Lead to Decline in Self-Insured Plans, SHRM Online Legal Issues, May 2010

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform Resource Page

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