Employers Split on Whether to Self-Fund Prescription Drug Plans
By Bill Olson
Chief Marketing Officer for United Benefit Advisors
On average, 11.9% of prescription plans are self-funded, with the vast majority (88.1%) of employers choosing to fully insure their prescription plans, according to UBA’s new Special Report: Trends in Prescription Drug Benefits, based on data from the latest UBA Health Plan Survey of more than 10,000 employer-sponsored health plans. Although self-funding has increased 9% from the past survey year, the move to self-funding is slow but positive among small groups (10 to 199 employees), while large groups are actually moving away from this model.
- Education, finance/insurance, government, and utilities employers have the most self- funded prescription plans (more than 20%), a trend that has persisted for three years.
- Regionally, there are vast discrepancies in self-funding trends. California has the fewest self-funded plans (1.9% — which has changed little in three years). Self-funding is the most common in the North Central U.S. (18.3%).
- Typically, the larger the employer, the more likely it is to self-fund the prescription drug plan. Over 60% of plans among employers with more than 1,000 employees are self- funded. However, this is a 15.5% decrease from two years ago. Similarly, employers with 200 to 499 employees have seen an 11.7% decrease in self-funding in two years.
- Approximately 1.9% of employers with one to 49 employees have self-funded prescription plans—a small number, although that is a significant increase when you consider that only 1.0% of these plans were self-funded just two years ago.
“With the possible expiration of grandfathered and grandmothered ACA plans in 2017, many small employers are looking to self-funded and level-funded plans,” says Scott Deru, President of UBA Partner Firm Fringe Benefit Analysts. “Level-funded means funding a self-funded plan at the maximum potential liability so that no additional liability exists at the end of the plan year or upon termination of the plan. Many employers are also joining a pool that employs a self-funded or level-funded strategy. These plans can avoid many of the ACA provisions that employers consider unfavorable. A continued increase in adoption of these plans is anticipated.”
Besides funding options, UBA’s Special Report finds that employers are using other cost containment strategies such as increased tiers, blended copay/coinsurance models and penalties for brand name drugs—as part of their effort to control the soaring costs of specialty pharmacy drugs.
For more information on prescription drug trends, subscribe to the UBA blog, read our breaking news release or download UBA’s free (no form!) publication: Special Report: Trends in Prescription Drug Benefits.