Self-funded Health Plans

It must be health care coverage week and today we look at self-funded plans again.  Self-funding is a method for employers, usually large ones, but increasingly even relatively small companies, to gain some financial advantage by paying health claims themselves instead of paying a premium to an insurance company.  The advantage is largely timing; instead of paying premiums in advance of receipt of services by employees, you pay the actual bills after the health service was rendered.  But there is also a very large regulatory advantage.  Under the federal ERISA law, which governs all manner of employee benefit plans, self-funded health care coverage plans are exempt from almost all state regulation, unlike insured plans.  The recent health care reform law eroded some of that advantage by setting some minimum standards for all health plans, self-funded or insured, but there is still significantly greater benefit design flexibility in being self-funded.  Very few employers, however, actually self-administer a health plan, that is pay the claims and undertake the other management activities needed.  Instead they hire third-party administrators, often the very large private insurance companies like UnitedHealth, Aetna, Cigna and various Blue Cross plans, to perform that work for them.

An Employee Benefits Research Institute report gives us some perspective on current trends in self-funding from 2013 to 2018.  (EBRI Report)  In 2016 about 41% of private companies said they had at least one self-funded option in their health care coverage plan.  By 2018, that number had dropped slightly to 39%.  Small companies showed an increase early in the study period, from 13% in 2013 to 17% in 2016, but that declined to 13% again in 2018.  Medium-sized firms similarly had an increase in the use of self-funding, from 25% to 29% from 2013 to 2016, but the number was then flat to 2018.  Surprisingly, from 2013 to 2017 the percentage of large employers with a self-funded plan dropped from 84% to 76%, before rebounding to 79% in 2018.  Because so many more employees work in large companies, the percent of people enrolled in a self-funded plan is much larger than the number of firms offering one.  In 2018, 58% of workers were covered by a self-funded plan compared to 59% in 2017.  Self-funding use has some geographic variation across states; with only 24% of companies in Massachusetts using it compared to 53% in North Carolina.