More Small, Medium-Sized Employers Offer Self-Insured Health Plans

Self-insured health plans are increasingly becoming more attractive to small and medium-sized employers, new research from the Employee Benefit Research Institute revealed.  

Since 2018, the percentages of small and medium-sized employers offering at least one self-insured plan both increased, whereas the percentage of large companies offering a self-insured plan has decreased.  

In a self-insured health plan, an employer does not purchase insurance to cover the costs and financial risks associated with employee health plans, but instead acts as its own insurance company, assuming the costs incurred by health care services among employees with health coverage, EBRI explained. 

However, these employers often contract with an insurer to be the administrator of the plan and to take advantage of insurer-negotiated provider rates. In contrast, in a fully insured plan, an employer pays premiums to an insurance company, which assumes the risks associated with offering health insurance.  

Therefore, an employer that is self-insured could potentially save on health benefits spend and allocate more of its budget toward other benefits, including retirement, financial wellness and student loan benefits.  

According to the Self-Insurance Institute of America Inc., self-insured employers are able to protect themselves against unexpected or “catastrophic” claims by purchasing “stop-loss insurance” to reimburse them for claims greater than a specified dollar level. This is an insurance contract between the stop-loss carrier and the employer and is not deemed a health insurance policy covering individual plan participants. 

Why Self-Insure? 

In addition to affordability, EBRI highlighted several reasons why an employer may want to self-insure.  

For example, a self-insured plan allows employers to offer consistent benefit packages wherever they happen to be located, which results in ease of administration and lower expenses. Self-insured plans also do not have to satisfy state health insurance laws, including state-mandated reserve, benefit, claims, premium and other requirements.  

EBRI found that the passage of the Affordable Care Act of 2010 largely caused more small and medium-sized employers to adopt self-insured plans. This occurred because several key ACA components, such as creditable coverage, affordability, essential benefits and various taxes and fees would drive up the cost of health coverage, making less expensive self-insurance a more efficient option.  

“Self-insurance would become an increasingly attractive option mainly for small and medium-sized employers, as fewer of them were self-insured in 2010, whereas many large employers were already offering self-insured health plans at that time,” the report stated.  

Only 13% of private-sector employers with fewer than 100 employees were self-insured in 2010, compared with 82% among employers with 500 or more employees, according to EBRI.  

In 2016, 40.7% of private sector establishments reported that they self-insured at least one of their health plans. By 2018, the number dropped to 38.7% of employers, and in 2020, it peaked at 41.9% of employers before settling back to 38.2% in 2022.  

Specifically, among medium-sized companies, which have between 100 and 499 employees, EBRI found that the percentage with a self-insured health plan jumped to 37% in 2022 from 32% in 2020. 

Increase in Employee Enrollment 

As more employers have adopted self-insured plans, enrollment in those plans has increased as well, according to EBRI. 

Enrollment peaked in 2015, when 60% of private sector workers were enrolled in self-insured plans. It has since declined slightly, as 55% of workers were enrolled in self-insured plans in 2022. This occurred despite the increase in self-insurance among small and medium-sized companies because of a drop in self-insurance among large firms, EBRI found. 

Over the longer term, trends in enrollment in self-insured plans have varied when examined by firm size.  

There was a trend away from enrollment in self-insured plans that started in 2016 among workers in establishments with fewer than 10 employees, 10 to 24 employee and 25 to 99 employees. However, this reversed itself in 2021 for those with fewer than 10 employees and 25 to 99 employees, and there was a one-time increase in 2022 in self-insurance among workers in establishments with 10 to 24 employees.  

Consolidated Appropriations Act Comes Into Play  

Employers offering self-insured health plans must be in compliance with the Consolidated Appropriations Act of 2021, which included provisions that created a new fiduciary obligation for employers and changed the way health benefits brokers and health insurance companies do business.  

Health plan sponsors now need to comply with requirements for reporting on prescription drug and other health care expenditures, and there are new requirements for maintaining an interactive tool for providing health plan participants with provider-specific information about the amount they will need to pay for services.  

Overall, self-insured employers have more data to work with and hold more responsibility that their workers are getting the best coverage for a reasonable price.