Small employers likely to boost self-insured health plan growth

The health reform law might push more companies to take on their own insurance risk. Some in organized medicine fear negative consequences if numbers increase.

By — Posted Dec. 17, 2012

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The number of companies opting for self-funded health plans has been on a steady rise for more than a decade. Large companies have been responsible for the majority of that growth, but some industry analysts speculate that more small employers soon may show a preference for self-insured plans.

Many insurance industry experts agree that the impact of the growth of self-insured plans will have a minimal impact on physicians, but some in organized medicine disagree. Their primary concern is how the rise of self-insured plans will affect their ability to demand prompt payment of claims.

A November report by the Employee Benefit Research Institute found that the percentage of workers covered by self-insured plans increased from 40.9% in 1998 to 58.5% in 2011. The prevalence of self-insured plans varies by state, but large companies are the most likely to offer them. Nearly 69% of employees in companies with 50 or more workers were in self-insured plans in 2011 compared with 10.8% of workers in companies with fewer than 50 employees.

Because of the variation of state laws governing fully insured plans, large employers — particularly those with multiple facilities in two or more states — have preferred self-insured plans, saying they give them better control over health care expenses and plan management.

Self-insured plans are governed by the Employee Retirement Income Security Act of 1974, making them exempt from state laws that often include much tighter regulations than ERISA. Employers with facilities in more than one state gain consistency in how their health plans are designed and managed when they are self-insured.

Soon after the Affordable Care Act became law in December 2009, there was speculation in the industry that the number of companies offering self-insured plans would grow. Although the ACA placed new restrictions on such plans, the plans are “favorably treated” under the ACA, said Daly Temchine, an attorney in the Washington office of Epstein Becker Green. Some mandates created under the ACA will apply only to fully insured plans.

The EBRI report did not show a dramatic effect on the number of self-insured rates in the two years since the law was enacted. But most aspects of the law will not go into effect until 2014. The picture might be much different a year from now, as employers prepare for those changes, said Bill Copeland, U.S. life sciences and health care leader for Deloitte. Copeland leads the consulting firm’s health plans group.

Self-insured plans’ effect on doctors

The sector to watch is small employers, said Paul Fronstin, PhD, director of the Health Research & Education Program at EBRI and author of the report. Some may opt for self-insured plans while others might look to state insurance exchanges, he said. Small employers may benefit from a self-insured model, because they would be exempt from paying state taxes on their insurance premiums and be exempt from state mandates.

Fronstin said he’s not sure what a possible increase in self-insured patients might mean to physicians, since most of these plans are administered by large payers (the same ones that sell fully insured plans) that sometimes “rent” the networks they have for their traditional plan holders. Patients under self-insured plans would carry the same insurance cards as others, making it difficult for a physician practice to know which patients are part of a self-insured plan or a fully insured plan.

But, as some physicians in Georgia found, a patient’s plan becomes apparent to doctors when payment and coverage issues arise, said Donald Palmisano Jr., executive director and CEO of the Medical Assn. of Georgia. And resolving problems is more challenging when the practice is dealing with a self-insured plan, he said.

When they call a plan administrator to ask about a claim that has not been paid in a timely manner, some doctors are told that the plan is self-insured and not required to comply with state prompt-payment laws.

The number of workers covered by self-insured health plans rose nearly 20 percentage points from 1998 to 2011.

That is set to change in January 2013, when Georgia’s Insurance Delivery Enhancement Act of 2011 is set to take effect. The law requires companies that provide third-party administrative services to pay medical claims in a timely manner. But America’s Health Insurance Plans sued Georgia’s insurance commissioner in August, seeking to block the law’s enactment. The American Medical Association and MAG filed a motion in October requesting to intervene in the case as defendants.

Palmisano said AHIP’s suit is a good indication that physicians in other states with a growing number of self-insured plans may face similar battles to ensure prompt payment.

Copeland said the growth of self-insured plans could mean that physicians will see different levels of payment, depending on the sponsor of each plan. But that could be a positive development for physicians, Temchine said.

Some employers are creating their own networks by contracting directly with physicians and hospitals based on the perceived ability to provide the best care. This could give physicians and hospitals leverage to negotiate better rates, he said.

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The rise of employer self-insurance

The number of workers covered under self-insured plans has increased steadily for more than a decade. Experts say more growth is expected among small employers that are starting to see a benefit to self-funding their employees’ health care needs.

Year % of employees in self-insured plans
2002 50.2%
2003 51.6%
2004 53.7%
2005 53.4%
2006 52.8%
2008 55.2%
2009 56.1%
2010 57.5%
2011 58.5%

Note: No data were available for 2007

Source: “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size,” Employee Benefit Research Institute, November (link)

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