As with any large-scale change, the ACA yielded some unforeseen results alongside the goals it set out to achieve. One of those results is the self-insurance trend. Last year, the number of employers choosing to self-insure jumped seven percentage points according to a PwC survey. Sixty-six percent of companies with 500 to 1,000 employees are now designing their own health plans and fronting the costs themselves, up from 59 percent in 2014. Let’s take a closer look.
What is self-insurance?
“Under a self-insured healthcare plan, an employer pays for most of their employees’ premiums and contracts with a TPA to handle any number of administration services,” said Healthcare Trends Institute.
Partnering with a third-party administrator (TPA) in this way, an employer gets the freedom to design their own plan – as long as they’re willing to assume responsibility for claims instead of transferring the risk to an insurer. The extra latitude may sound appealing. The costs and risks, less so.
What are the costs and risks?
Companies that self-insure must be financially prepared to pay possibly-catastrophic medical costs that are covered by the plan, and not just for one employee, but for a worst-case scenario number of concurrent claims.
It makes sense, then, that self-insurance has historically appealed to large employers: they can afford it. What may come as a surprise is that recently, midsize and even smaller companies are adopting self-insurance as well.
Why are smaller companies choosing to self-insure?
Self-insurance gives companies the flexibility to tailor a plan to fit their business needs. More importantly, companies can leverage it to control costs, saving as much as 12 percent on health benefits – the insurer’s overhead, after all, is out of the picture. At a time when the cost of benefits is painful for businesses of all sizes, this means a great deal.
It also lets them work around certain ACA requirements. This type of plan isn’t subject to excise tax or community rating on premiums, for example. It’s exempt from mandates governing essential health benefits as well.
What are the self-insured coverage requirements?
The goal of the ACA is to make sure that health insurance is fair and affordable across the industry. But as mentioned, a company with self-insurance is allowed to opt out of providing the law’s ten essential benefits. Also, while self-insured plans are not exempt from providing minimum essential coverage (MEC), the ACA leaves the definition of MEC surprisingly vague. Self-insured plans are required to cover dependents up to age 26, to cover preventative services, and not to rescind coverage or to apply lifetime limits. Many innovative companies, combine self-insurance strategies with wellness programs and plan design to incentive a healthier workplace.
The BeaconPath approach
Here at BeaconPath, we’ve had great success with helping clients go self-insured. The goal is to take control of your group health benefits costs, and to thoughtfully offer benefits in a way that is most advantageous to your employee demographic, while promoting healthy lifestyles. There are many safety measures built into our plans to limit the employer’s risk.
If you’d like to know if your company is a good candidate for self-insurance, download our checklist here.