Self-Insured Group Health Plans Have Not Spiked After ACA

Fewer large companies are using self-insured group health plans, while the plans have seen a modest uptick among small and midsize businesses, according to the Employee Benefit Research Institute.  

A new EBRI issue brief, “Self-Insured Health Plans Since the ACA: Trends Remain Unclear,” says 40.1% of businesses offered self-insured health plans in 2021, down from 41.9% in 2020 and up slightly from 39.4% in 2019. The brief focuses on plan sponsor trends in self-insured plans from 2013 to 2021.

With these plans, the employer accepts the financial risk of providing health care benefits to its employees, whereas an employer with a fully insured group health plan buys health insurance for their employees on the commercial market.  

The research was conducted because, since the passage of the Patient Protection and Affordable Care Act of 2010, some commentators “speculated that an increasing number of small and medium-sized employers would convert their health plans from fully insured to self-insured plans,” according to the EBRI brief, as components of the ACA “would drive up the cost of health coverage, thus possibly making self-insurance—which is viewed by many as generally less expensive than fully insured alternatives—a more attractive option for many employers.”

The research examined data from the Medical Expenditure Panel Survey and found that trends are unclear.

“It looks like there’s actually this shift going on with fewer larger companies self-insuring and more smaller and midsize companies self-insuring, [though] the numbers are really small [and] it’s the longer- term trends [that are determinative],” says Paul Fronstin, the brief’s author and the director of health benefits research at the Employee Benefit Research Institute. “On a year-to-year basis, numbers go up a little, could go down a little, but you do see this shift—and I’m not surprised by it—to the small and midsize employers.”

The brief says the prevalence of self-insured plans generally increased through 2016 to reach 40.17% of plan sponsors, up from 34.2% in 2008.  

Among large employers, with 500 or more workers, 75.1% offered at least one self-insured plan in 2021, compared with 34.5% of midsize businesses, with 100 to 499 employees, and 17% of small businesses, with less than 100 employees, the brief says.

Fronstin says self-insured plans can benefit employers.  

Large employers have used self-insured plans to save money, he explains, because the plans can limit administrative costs and complexity, since one plan can be used across all 50 U.S. states.

“Large employer[s] will do this for a number of reasons,” Fronstin says. “If you’re a large employer [with employees] in 50 states, you don’t have to offer 50 different health plans. You could offer one plan, and you could offer the same plan to everybody, regardless of where they live, and that just makes life a whole lot easier for large employers. Otherwise, they’d have to contract with 50 different health plans to meet 50 different state rules if they were fully insured.”

In 2016, the percentage of small businesses with at least one self-insured health plan increased to 17.4%, up from 13.3% in 2013. In 2021, 17.0% of small businesses used a self-insured plan, up from 16.1% in 2020, 14.8% in 2019 and 13.2% in 2018, the brief says.

“It’s a small trend, but it does mean some small employers [are] doing this,” Fronstin says.

Small businesses have likely self-insured to save on costs as well, he adds.

Additional small employers may have begun “offering self-insurance plans for the first time, but some of them backed off of it—because in the end, it didn’t save them any money, because their stop-loss coverage went up, and they reverted back to a fully insured plan,” he says.

Small and midsize businesses that self-insure will usually complement plans with stop-loss coverage insurance to shield the company against the risk of paying out high-cost claims, “either on a per participant level or on an aggregate level,” Fronstin says.

“That’s something you’ll see more in the smaller [business] group than in the larger [business] group, because it helps a smaller group be able to take the risk associated with incurring large claims,” he says.

Employers that self-insure “don’t pay premiums to [an] insurance company,” says Fronstin.

“It doesn’t make sense for small businesses in most cases, which is why you don’t see many small businesses self-insuring, but for a large business it does make sense.”

He continues, “A large employer basically looks like an insurance company [because] they insure 10,000, 50,000, 100,000 people. They basically become their own insurance company from a risk perspective, so instead of paying premiums to an insurance company they pay the claims directly—of their enrollees, their workers and their dependents. But it looks and feels like traditional insurance or a fully insured plan to the participants, to the workers and dependents, because they don’t know the difference.”

Employers’ use of self-insured plans varies by state, the research says. The total for all employers ranges from 75.5% in Nebraska to 33.6% in Hawaii. For the five largest states by population, rates of employers that self-insure are: California, 41.8%; Texas, 62.8%; Florida, 56.2%; New York, 58.0%; and Pennsylvania, 56.2%.

“[Employers that self-insure] don’t have to comply with [the state mandates for] certain benefits be covered,” Fronstin says. “It gets them out of premium taxes that the state levies.”