Study Finds Health Care Law's Self-Insured Exemptions May Make Such Plans More Attractive to Small Firms

An issue brief published by the National Health Policy Forum claims that as the provisions of the Affordable Care Act take effect, the benefits of self-insuring health plans may make doing so more attractive to small businesses. Generally, although employers and employees contribute toward the cost of coverage under both self-insured and fully insured health plans, employers that self-insure bear all or some of the risk for paying incurred claims. Some of the benefits of self-insured plans include the fact that they are exempt from state health insurance regulation and benefit mandates, thereby allowing employers with multi-state operations to offer uniform benefits to all employees. In addition, since costs are based on a specific group’s claims experience, smaller firms with young, healthy workforces often benefit. According to the brief, self-insured plans are currently the most common source of health care coverage for U.S. workers. In 2009, 82.1% of firms with 500 or more employees offered self-insured health plans; 25.7% of firms with 100-499 employees offered such plans; 13.5% of firms with fewer than 100 employees offered self-insured plans. Certain exemptions from health plan requirements imposed by the Affordable Care Act may make such plans even more appealing.

The new requirements for health care plans are included in Title I of the Affordable Care Act. These requirements apply to all health care plans, including self-insured plans and group or individual health plans offered by insurance companies. The Affordable Care Act does, however, include certain exemptions for self-insured employer-provided plans. These exemptions include:

• Insured plans in the individual and small group market are required to provide coverage with minimum essential benefits.
• Individual and small-group plans are required to participate in a risk-adjustment system, but self-insured plans are exempt.
• Self-insured plans are not subject to provisions (specifically, medical loss ratio requirements and review of premium increases) that are intended to limit insurer earnings.
• Starting in 2014, health insurers are required to pay an annual fee to be calculated by the Secretary, but self-insured plans do not have to pay this fee.

According to the study, self-insuring could become more attractive for small employers with an adequate size and risk profile. Specifically, the study claims that:

In 2014 and beyond, smaller employers with relatively healthy workers that have low medical costs may find it financially advantageous to pay for their own firm’s risk (with a third-party administrator vendor and stop-loss coverage) than to purchase a plan through the exchange (or outside of the exchange), where, because of small-group market reforms, their workers’ premiums will be a function of the broader risk pool and subject to risk adjustment. If enough small firms with healthier enrollees opt out of a state’s small-group market in 2014, that state exchange could experience adverse selection.

If this occurs, the cost of obtaining insurance through the exchanges will increase. Anticipating this possible result, lawmakers included a provision in the Affordable Care Act that requires the Secretary of Health and Human Services, in consultation with the Department of Labor, to study fully insured and self-insured group health plan markets. This study is due by March 23, 2011. The results of this study could result in a stricter definition of what constitutes a self-insured health plan.

A complete copy of the issue brief an be read here. (pdf)

This entry was written by Ilyse Schuman.

Photo credit: Andriy Solovyov