A couple of years ago, as many smaller employers were first beginning to think long and hard about how they would fare under the Affordable Care Act, benefit advisers and industry experts talked a great deal about the pros and cons of self-insuring their health benefits. Self-insurance is, of course, less common among smaller employers than among large ones (see Table 1). For example, only 16% of workers in companies with fewer than 200 employees were covered by partially or fully self-insured plans last year, versus 94% working at companies with at least 5,000, according to Kaiser Family Foundation research.

Benefit advisers should remember that the traditional, pre-ACA potential benefits of self-insuring — including avoiding state-mandated benefits and possible cost reductions — will be supplemented by some new ones thanks to the health law.

ACA loopholes

For example, self-insured employers are not subject to some of the essential benefits required of fully insured plans, such as mental health and maternity care. In addition, self-insured employers won’t be forced to absorb the impact of the new ACA-mandated tax on health insurers, estimated to add around 2% to the cost of coverage today and 3% down the road. Finally, ACA-mandated changes to community rating rules may increase the cost of insured health plans in many areas.

Self-insured plans will still be required to comply with most of ACA’s more basic requirements, such as:

  • Providing dependent coverage up to age 26,
  • No limits on annual or lifetime benefits,
  • First-dollar coverage for preventive benefits, and
  • No exclusions of individuals based on pre-existing conditions or other health status factors, such as claims history.

So far, talk among smaller employers about self-insurance has mainly been just that. And there seems to be a bit of confusion among some small businesses regarding whether they are self-insured or not. Research by the National Federation of Independent Business found that 5% of business owners with 10-19 employees weren’t sure about that matter.
Still, “we have not noticed a rush to self-insurance in the past year, but there is definitely increased interest in learning about it,” says Kevin Kuhlman, manager of legislative affairs for the NFIB.

As Table 1 indicates, while the percentage of workers covered by self-insured plans has bumped up a notch over the past three years, it has merely reached the prevalence (at 16%) that it once held long before the ACA.

Focus on 2016

“It will be interesting to see,” says Kuhlman, “what happens in 2016.” That’s when — barring any more delays — the ACA’s employer responsibility mandate kicks in for employers in the 50-99 employee bracket. (Larger employers will face that choice next year, and employers with fewer than 50 employees have always been off the hook.)

Cigna reports it has had a steady, if not dramatic, growth of interest in its select segment product line aimed at employers in the 51-250 employee size bracket. Cigna’s self-funded arrangements are more tightly integrated than alternatives in which the employer works through a third-party administrator and buys stop-loss coverage on its own.

Cigna incorporates its own stop-loss solution into its products, and employers can choose the level of exposure they want; most cap it 120% of expected claims, according to Lauren Stoddard, a product manager for the company. “We can go as high as 150%,” she says, but notes that few smaller employers do. Most cap individual employee claim exposure in the $20,000-$30,000 range, Stoddard says.

When prospecting for strong candidates for self-insurance, Stoddard encourages benefit advisers to consider employers that have made a strong commitment to employee health promotion. That’s because self-funded employers can obtain much more detailed claims data, while still being HIPAA-compliant. Armed with that data, employers can do more to target areas of opportunity and make adjustments to their programs, Stoddard says.

Employers also urgently seeking ways to cut health costs may also be receptive to self-insuring, they should not be encouraged to expect immediate and dramatic savings, Stoddard cautions.

Stolz is a freelance writer based in Rockville, Md.

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