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The Affordable Care Act drove smaller businesses to self-insure their health plans; now what?
In recent years, employers looking for ways to avoid many of the regulations and requirements related to employee health benefits have turned to self-insurance. For the most part, these were large or midsize organizations that were likely to have enough cash flow to meet the financial commitments associated with self-insurance.
Smaller employers had historically avoided self-insured health plans out of concerns that their cash flow and risk tolerance would be a poor fit for self-funded coverage. Then the Affordable Care Act (ACA) put in place a range of plan design and coverage obligations for employer plans but
exempted self-insured plans from many of these requirements. As a result, smaller employers began considering how they, too, could shift their health plans to a self-insured model.
Data from the nonprofit Employee Benefits Research Institute (EBRI) in Washington, D.C., found that
self-insurance increased between 2011 and 2015:
According to the Self-Insurance Institute of America, a trade group in Washington, D.C., a self-insured group plan (also known as a self-funded plan) is one in which
the employer assumes the financial risk for providing health care benefits to its employees.
As opposed to fully insured employers, self-insured employers typically will:
More than the ACA
The Republican Congress is now
moving to "repeal and replace" the ACA, although the timetable for doing so and the scope of the eventual replacement plan remain uncertain.
"ACA exemptions made self-insurance much more attractive, so it is unclear what is going to happen," said Robert Pozen, senior lecturer at the Sloan School of Management at the Massachusetts Institute of Technology in Cambridge, Mass.
Regardless of the ACA's future, proponents argue that self-insured plans offer employers compelling opportunities beyond avoiding ACA compliance. While the ACA has been a key driver of the growth in self-insured health benefits, "many smaller employers are looking for a different approach to health coverage," said Michael Schroeder, president of Roundstone Management Ltd. in Cleveland. "Self-insurance can help them address limitations in underwriting and pricing, provide more control over plan design, and avoid taxes that can total 3 to 4 percent."
Schroeder noted, for example, that because self-insurance allows employers greater access to aggregate claims data, these organizations can see what is driving cost increases and adjust plan design or target wellness initiatives to contain costs in any problem areas, such as workforce obesity.
"With a fully insured plan, employers find out the total cost increase during annual renewal but receive no information that is specific to their organization" to see how their costs compare to their peers, he said.
[SHRM members-only toolkit:
Complying with and Leveraging the Affordable Care Act]
The key issue for smaller employers when it comes to self-insurance is the size of the covered population and ensuring that these organizations have the resources to pay for unexpectedly large claims.
"Self-insurance makes the most sense for companies with a healthy employee population," said Pozen. "But most companies do not have a workforce made up of 25-year-olds. And you never know when someone could have a costly illness or medical condition."
Risk management tips include the following:
California, for instance, requires self-insured employers to have at least 50 employees and carry stop-loss coverage with a minimum deductible of $40,000. The intent is to prevent employers from buying stop-loss coverage with a deductible so low that the health plan resembles traditional insurance coverage while the employer avoids many of the requirements that the state places on fully insured plans.
If that happens, the employer may have as little as three months' notice of nonrenewal and may not be able to replace that coverage easily—or at all.
Even if the employer is able to find new stop-loss coverage, the cost could be prohibitively expensive. For that reason, it's important to work with a broker who understands the stop-loss market, said Pozen.
To help smaller employers find a TPA that is able to meet their needs, he advised asking a prospective TPA questions about the average size of its self-insured customers and then delving down into matters such as:
Joanne Sammer is a freelance writer based in New Jersey.
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