Self-Insured Health Plan Offerings Growing Among Small Employers

The Employee Benefit Research Institute (EBRI) has seen a lot of interest in plan sponsors using self-insured health plans since the passage of the Affordable Care Act (ACA), according to Paul Fronstin, Ph.D., director, Health Research & Education Program, EBRI.

Fronstin told attendees of a recent webinar that EBRI’s February analysis of the Medical Expenditure Panel Survey, conducted by the Census Bureau and completed by nearly 40,000 private-sector employers, found that over the long-term, the percentage of employers offering at least one self-insured plan has been increasing; as of 2016 nearly 41% were offering at least one. By company size, smaller firms are increasingly offering a self-insured health plan, while offerings from mid-sized firms have leveled off and offerings from large firms are trending down.

Among employers with less than 100 employees, the percentage offering at least one self-insured plan increased from 14.2% in 2015 to 17.4% in 2016, the latest year of data released by the Medical Expenditure Panel Survey. Among firms with 500 or more employees, the percentage decreased from 80.4% to 78.5%.

Kris Haltmeyer, vice president, Legislative & Regulatory Policy, Blue Cross Blue Shield Association, and EBRI’s vice chair of health care research, explained to webinar attendees that in a self-funded arrangement, plan sponsors bear all financial costs associated with health claims of employees—administration is a fixed cost, but medical claim costs are variable. According to Haltmeyer, the market is seeing more hybrid self-funded arrangements, where employers buy stop-loss insurance to help with unexpected, catastrophic claims.

In a hybrid arrangement, a fixed monthly payment to the stop-loss insurance carrier consists of a paid claims fund, specific and/or aggregate stop-loss coverage and administrative fees, he said. If medical claims are lower than the amount in the paid claims fund, employers would have a surplus, a percentage of which would be refunded.

Haltmeyer added that there is a greater availability of products for self-funded insurance for the small employer market, especially for those with small claims.

Which firms should self-fund health insurance?

Christopher E. Condeluci, founder of CC Law & Policy, and Washington counsel for the Self-Insurance Institute of America, told attendees that self-funding health insurance is not for every firm. Regardless of firm size, it needs to have enough capital on hand to take on the risk of paying employees’ health care claims. He contended, for example, that employers with high turnover are not good candidates for self-insured plans because employees are not sticking around long enough for the employers to make that investment in managing employee health and making sure they have healthy, productive workers.

He also said employers with an unbalanced risk pool—that is, employee demographics are skewed older or a group of employees are at high risk for major medical expenditures—are also not good candidates for self-funded plans because they don’t want to be “on the hook” for high health care claims.

Condeluci explained that an employer’s overall health care spend is typically lower if it self-insures, although there are exceptions. Employers self-funding health plans are not paying a “risk load” to an insurance carrier, are not paying a “profit load” to an insurance carrier, and are not paying state premium taxes or the ACA insurer excise tax.

Managing employees’ health and health care utilization

According to Condeluci, employers with self-funded health plans typically better manage employees’ health and health care utilization because they have a greater vested interest in making sure employees are healthy. “I’m not saying fully insured employers don’t have the same view about keeping employees healthy, but they don’t have the same vested interest,” he told webinar attendees.

Condeluci said tools to better manage health and health care utilization include wellness and disease management programs; data analytics used to identify health claims trends; and transparency tools about health quality and costs, intended to help employees become better consumers of health care.

According to Condeluci, it is valuable to incorporate value-based care strategies in efforts to manage employees’ health and health care utilization. He noted that large employers more likely than small employers to engage these strategies, but small employers can.

These strategies include:

• Reference-based pricing – intended to ask employees to go to a specific provider for a procedure in return for a certain payment towards coverage;
• Bundled payments – negotiated payments with providers for certain medical episodes;
• Centers of excellence programs – in which providers meet certain performance metrics and payments are negotiated, in most cases to reduce cost-sharing between the employer and the provider of health services;
• Direct-to-employer contracting – a model of shared risk between the employer and provider of health services as to cost;
• Chronic care management program; and
• A consumer-driven health plan (CDHP) with a value-based insurance design, paired with a health reimbursement account (HRA) or a health savings account (HSA), intended to lower cost and make employees better consumers of health care.

Haltmeyer concluded that self-funding is expected to increase among small employers with fewer than 50 employees. He said data from the National Association of Insurance Commissioners shows enrollment in group plans provided by insurance carriers declined 30% in the small group market since 2011.