Healthaxis Corporate Blog

Self-Funded Plans-A Reality Check

  

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As we have noted on many previous occasions, in order to make real change happen in the healthcare industry, we need less, not more government intervention in order for programs to really succeed and make a difference in the lives of employers and employees.  We need to continue the use of self-funding (or self-insurance; the terms are used interchangeably for our purposes here) as a mechanism for employers to get their employees the coverage they need. 

Self-Insurance is growing, and is emerging as an option, not only for large corporations, but smaller organizations too.  According to the Kaiser foundation, approximately 60% of all workers covered by private health insurance in 2011 are in self-funded plans.  This percentage is up from just under 50% in 2000.  It is an increasingly sensible route for employers to provide healthcare benefits to their employees, while forgoing the typical route of paying premiums to insurance companies.  Part of the growth has been driven by smaller employers.  This is because small companies are discovering the benefits of greater flexibility in these self-funded plans in comparison to traditional, fully-insured plans, at a cost that is sometimes significantly lower.  Self-funded plans are allowing companies to save as much as 40% on their overall cost, while still allowing for custom-design of their plans. 

There are many reasons why employers choose the self-insurance option. The following are typical:

• According to a Deloitte study of self-funded plans, premium growth from 2005-2010 has been 35% in fully insured plans, but only 26% for self-funded plans.  For 2009-2010, the average premium dollar growth was $808 in fully-insured plans compared to $248 for self-funded plans.
• The employer can customize the plan to meet the specific health care needs of its workforce, as opposed to purchasing a 'one-size-fits-all' insurance policy.
• The employer maintains control over the health plan reserves, enabling maximization of interest income - income that would be otherwise generated by an insurance carrier through the investment of premium dollars.
•  The employer does not have to pre-pay for coverage, thereby providing for better cash flow.
• The employer is not subject to conflicting state health insurance regulations/benefit mandates, as self-insured health plans are regulated under federal law (ERISA).
• The employer is not subject to state health insurance premium taxes, which are generally 2-3 percent of the premium's dollar value.
• The employer is free to contract with the providers or provider network best suited to meet the health care needs of its employees.

While over the years, there have been criticisms of self-funding, it has come primarily from state legislators and insurance regulators who feel that these plans should fall more under their control.  As mentioned above, self-funded plans are subject primarily to federal law.  There is no evidence to support the notion that more governmental control is needed.  Healthaxis believes that self-funding needs to be better understood by everyone, employers and regulators alike.  Anything that disrupts the effective use of self-insurance is bad for corporations and the employees that work there.