Many employers choose to self-fund health care coverage. That means that they bear most of the risk for the cost of health services under the plan they offer employees. Self-funding is generally exempt from most state regulations and may have cash flow advantages. Employers typically select an outside administrator for the plan, often large national companies like UnitedHealth Group, Aetna, Cigna or a Blue Cross plan, and those administrators pay claims, contract with a provider network, do utilization management and other functions. Almost all large companies have a self-funded plan. The federal reform law, among other bureaucratic niceties, mandates that the US Department of Labor produce an annual report on self-funding. The report is largely generated from Form 5500s, which are annual reports that self-funded plans must file if they have more than 100 participants or if they have assets in a trust. (DOL Report) The latest annual report covers 2016 and finds that 56,200 group health plans, covering around 135 million people, filed a Form 5500 in that year, an increase of 3% from the prior year. Out of that number, 23,700 were solely self-insured and another 4,100 offered both self-insured and insured plans. These plans covered about 75 million people and had assets of $223 billion. Larger self-funded plans, those with more than 100 participants, don’t have to hold assets in trust and most plans met this standard but many of them still utilized a trust. For self-insured plans that did have assets in a trust, total contributions to the plans of $146 billion were made and $142 billion in benefits were paid. Obviously, if an employer does not put adequate assets into a trust, or does not have sufficient financial resources, there is some risk that a self-funded plan may not be able to pay benefits. The DOL estimates that in total in 2016, about 135 million people had some form of employer-sponsored group health coverage, so the majority were covered by self-funded plans. About 22,700 of the self-funded group plans were sponsored by a single employer; 1000 were multi-employer plans. Around 4600 new plans filed a Form 5500 in 2016. 35% were self-insured, 3% had mixed plans and 62% were fully insured. But the self-funded plans would have covered many more employees than the other types, due to the prevalence of self-funding among larger employers. Self-funded plans often buy stop-loss coverage to protect against unexpectedly large individual claims or total medical costs. The prevalence of stop-loss coverage tends to decline for plans with over 500 employees. Consistent with other evidence, the DOL report suggests that the self-funded market is alive and well.
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The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at firstname.lastname@example.org.