ACA Driving Funding to the Smaller Market
By Josie Martinez, Senior Partner and Legal Counsel
EBS Capstone, A UBA Partner Firm
Many U.S. employers offer self-funded insurance plans, with most of them purchasing stop-loss coverage from insurance providers. Historically, most of these companies have been large employers. However, given the fact that self-funded companies could avoid many PPACA regulations, more companies, particularly those will less than 100 employees, are considering this alternative strategy. Popularity for self-funding comes at a time when employers, both small and large, are looking for more flexibility and lower costs while at the same time maintaining control in the design and financing of employee benefits. To further this cause, carriers are now providing more self-funding options for smaller groups in an effort to satisfy employers' interests and provide their clients with creative solutions to control and lower costs.
Momentum is gaining and the industry could see a shift in the marketplace as smaller businesses avoid costly ACA requirements, such as the health insurance industry fee which will add 2 percent to premiums in 2014 and probably more in later years. While there are still some PPACA fees that companies, self-funded or not, cannot escape (i.e. Patient-Centered Outcome Research Fee, Transitional Reinsurance Program Fee), in many markets changes to the use of specific rating factors in the group market are driving the move to self-insurance as well. According to a recent CNBC article, nearly 80 million people received health benefits through self-insured plans last year -- an all-time high statistic. This means more than 60 percent of covered employees nationally use this funding mechanism. The number of smaller companies using self-insured plans increased to 15 percent in 2012 and continues to escalate.
Granted, there are potential risks that must be considered when making the decision to switch to a self-funding program. In any given year, there can be large swings in costs due to high-cost claims, or unexpected frequency of claims. Evaluation of the risk/reward ratio should be conducted carefully so smaller employers purchase adequate protection. The employer also needs to be prepared to be more involved in the benefits offered by the plan as well as the administration of the plan. In addition, although self-funded plans still enjoy more benefit flexibility than fully insured plans, plans must still comply with the new "no-annual-or-lifetime-limit-on-essential-health-benefit" rule.
Obviously, self-funding will not work for every employer. In order for self-funding to be a viable option, it should be a multi-year commitment and strategy. Employers and their insurance advisors should consider the company's benefit philosophy, risk tolerance, historical claims data and workforce demographics, among other things, in order to make an informed decision. The point is, what might not have seemed like a viable option in the past for smaller employers, is now a real possibility and potential option for a new set of thoughtful employers.