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Employers see self-insurance as hedge against ACA health costs

More corporate interest in self-funded plans, particularly from small employers, reflects fears that health system reform will send insurance rates skyrocketing.

By Sue Ter Maat — Posted April 30, 2013

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Executives in health insurance and related businesses expect to see acceleration of companies self-funding their employee insurance plans as the mandatory health insurance aspect of the Affordable Care Act is implemented. Employers view it as a way to further control what they see as cost hikes prompted by health system reform.

Of the 326 executives surveyed by Munich Health North America-Reinsurance Division, 82% said they heard more interest during the last 12 months in employers self-funding their group health insurance plans. That includes 32% who said interest has increased “significantly.” As a result, 69% said they expected their business in administering self-funded plans to grow. The survey was conducted March 3-11 and released in April.

The trend toward self-funding is being driven by employers who are trying to control the costs of employee health benefits, said Richard Phillips, president of Munich Health North America-Reinsurance Division, in a statement.

“A properly designed self-funded health plan can allow a company to directly reap the benefits of their cost-containment and wellness activities as opposed to having to pay a monthly premium based on an arbitrary set of rating restrictions,” Phillips said in a statement. “As companies struggle with the growing cost of providing quality benefits, we expect self-funding to continue to grow in popularity.”

The majority of executives surveyed in the Munich report said they expect the ACA to increase health insurance premiums. Forty-two percent said premiums will increase by more than 25%. Forty-four percent said premiums will rise between 10% and 25%, and 11% said premiums will go up 10%. The remainder said it will have no impact, or premiums will decrease.

Big companies favor self-funded insurance

Self-funding of insurance has long been on the upswing. The Employee Benefit Research Institute reported in November 2012 that self-funded plans increased from 40.9% in 1998 to 58.5% in 2011. It found that large companies were most likely to offer them. Sixty-nine percent of employees with 50 or more workers were in self-insured plans in 2001, compared with 10.8% of workers in companies with fewer than 50 employees.

However, small companies are looking more seriously at self-funding, said Andrew Thompson, CEO of TS Insurance Group, a health insurance consulting firm in Heathrow, Fla. Those with good loss histories regarding their employees’ health plans are particularly interested, he said.

“Small employers usually have a good idea whether their employees have serious health problems,” Thompson said.

The Employee Retirement Income Security Act of 1974 governs self-insured plans. They usually are exempt from state laws that may have stronger regulations than ERISA — notably, ones that require insurance plans to pay physician claims within a certain number of days.

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