Self-Insurance Growing, but Not Among Small Firms So Far

Self-insurance may become a more attractive means to mitigate regulatory cost increases

By Stephen Miller, CEBS Jun 22, 2015
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Will U.S. small businesses follow the lead of bigger firms and start self-insuring their medical benefits to avoid the costs of the Affordable Care Act (ACA)? So far, there is no evidence of a surge in that direction, according to research by the nonprofit Employee Benefit Research Institute (EBRI).

Since the ACA’s enactment in 2010, there has been speculation that the law will result in an increasing number of smaller employers offering self-insured plans, according to Self-Insured Health Plans: State Variation and Recent Trends by Firm Size, published in the June 2015 EBRI Notes. The study looked at self-insurance through 2013, the last year for which data was available.

“Some employers think that components of ACA, such as the strict grandfathering requirements; the minimum-creditable-coverage requirement; the breadth of essential-health benefits; the taxes on insurers, medical-device manufacturers, and pharmaceutical companies; the affordability requirements; and the reinsurance fees will all drive up the cost of health coverage,” wrote Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “To the degree small employers are concerned about the rising cost of providing health coverage, self-insurance may become a more attractive means to mitigate any expected regulatory cost increases.” However, he added, “So far, there is no sign smaller firms are moving to self-insure, even though more large firms are doing so,”

The analysis found that the overall percentage of American workers in self-insured plans has been increasing in recent years compared to pre-ACA. In 2013, 58.2 percent of workers with health coverage were in self-insured plans, up from 40.9 percent back in 1998. However, the percentage of workers in self-insured plans in firms with fewer than 50 employees has been close to 12 percent in most years examined in the analysis going back to 1996.

As of 2013, among U.S. employers 37.6 percent used at least one self-insured health plan. By company size, the breakdown was as follows:

  • 500 or more employees: 83.9 percent.
  • 100-499 employees: 25.3 percent.
  • Fewer than 100 employees: 13.3 percent.
  • Fewer than 50 employees: 13.2 percent.

Regional Variations

The overall percentage of workers in self-insured plans as of 2013 varied among the states, from an overall low of 35.5 percent to a high of 73.5 percent:

  • Hawaii (at 35.5 percent) was the only state with fewer than 40 percent of workers with health insurance in self-insured plans.
  • In four states (California, Massachusetts, New York, and Rhode Island) and the District of Columbia, between 40 percent and 50 percent of workers with health insurance were in self-insured plans.
  • Only two states (Indiana and Nebraska) had more than 70 percent of workers with health insurance in self-insured plans.

Costliest Catastrophic Claims for Self-Insured Plans

Individuals with claims in excess of $1 million remain a major driver of stop-loss coverage payments for self-insurance health plans, according to Sun Life Financial’s third annual Catastrophic Claims Report and key findings inforgraphic.

Among employers for whom Sun Life provided stop-loss coverages during the study period (2011 to 2014):

  • Cancer, congenital anomalies and premature births accounted for 28 percent of all claims breaching the $1 million mark.
  • Cancer remained the costliest disease, accounting for more than one quarter (25.7 percent) of the $2.1 billion Sun Life paid out to stop-loss claimants.
  • The top three conditions triggering stop-loss claims payments by the firm were two cancers (malignant neoplasm and leukemia/lymphoma/multiple myeloma) and end-stage renal disease. Together, these conditions made up 33.5 percent of total costs reimbursed by Sun Life.
  • Intravenous medications accounted for 13 percent of the firm’s stop-loss payments for claims during 2014. Approximately half of the top 20 intravenous medications identified in the report are used to treat cancer.
  • Transplants breached the top 10 conditions in 2013 and 2014, which could be the beginning of an upward trend.

“The findings confirm the need for self-funded employers to protect against common health events that could turn into catastrophic claims, and for employers to better understand the risks associated with large claims and the potential impact to a self-funded medical plan,” said Sun Life’s Brad Nieland, vice president for stop-loss coverage.


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

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Related News Article:

Are Smaller Companies Poised to Self-Fund Health Care?, CFO, June 2015

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