Is Self-Insuring a Threat to ObamaCare?

Wall Street Journal

By Mike Ferguson

Sept. 3, 2015

Most of the 275 million Americans with health benefits probably see the logo on the corner of their insurance card and think that’s who has them covered. But for almost 100 million of them—the majority of Americans who get coverage through work—the true insurer is noted somewhere else: on their business card. It’s called self-insurance, and the Obama administration seems interested in curtailing the practice to shore up the Affordable Care Act’s health-insurance exchanges.

Here’s how self-insurance works: Rather than pay an insurer to cover employees’ medical expenses, companies cover claims themselves. Since there’s no middleman, the employer keeps the money that would otherwise go to the insurer’s profits. Often, however, the company will contract with a third party to process and administer claims—hence the a big insurer’s logo on the many of those ID cards.

One of the advantages of self-insurance is that it allows employers greater flexibility to tailor their benefits. A tech firm with mostly young employees, for instance, might bolster its family-planning coverage, everything from contraception to top-notch care for high-risk pregnancies. A manufacturer employing an older workforce might hire an on-site health coach to help workers lose weight.

Self-insurers can further drive down expenses by investing in complementary services like wellness and prescription-drug adherence programs that tend not to be available through conventional insurance plans.

For a company like Wal-Mart, self-insurance works well. Because it has so many people in its insurance pool, Wal-Mart uses actuarial statistics to predict its medical expenses, the same way a regular insurer would. Smaller employers, with fewer than, say, 50 people, have a tougher time predicting costs. One year, the company’s workers could face no health problems. The next, several employees could fall seriously ill and require long-term treatment—and costs would skyrocket.

To protect themselves from catastrophic losses, many small and medium-size employers that self-insure purchase “stop-loss” insurance. If the employer’s medical claims surpass an agreed-upon threshold, the insurer reimburses the employer for any additional claims.

Stop-loss coverage helps tens of thousands of employers make self-insurance work. Take Broad Street Ventures, a Maryland-based real-estate broker with about 50 employees. In 2014, Broad Street’s insurer raised rates, so the company switched to a self-funded plan. Since then, the firm has trimmed health costs by 15%. Similarly, in 2013 the township of Freehold, New Jersey, switched after its conventional insurance premiums began spiking up to 20% annually. Its health costs are now stable.

Labor unions also rely on self-insurance. They negotiate with employers over contributions to the self-funded plans they administer rather than pressing for specific benefits. Unions then take those contributions and pay their members’ medical claims directly. That saves the union money—and gives workers flexibility. They can change jobs without losing coverage, provided their new employer also participates in the plan.

Yet some claim that small businesses with healthy employees are self-insuring to skirt the Affordable Care Act’s mandates regarding what policies must cover. In doing so, the argument goes, these firms take healthy workers off the law’s exchanges and increase premiums for everyone else.

The administration signaled interest in taking on self-insurance in 2012 through a regulatory information request. In 2013, then-Health and Human Services Secretary Kathleen Sebelius wrote to Congress noting concerns about “the possible effect of self-funded arrangements” on the ACA exchanges. The Labor Department issued guidance last year that effectively encouraged states to regulate stop-loss insurance in ways that could limit its availability, rendering it difficult for many employers to self-insure. California and Maryland have already imposed aggressive regulation.

All of this overlooks that small self-insurers are subject to most of the ACA’s reforms. Federal law requires self-insured plans to cover dependents up to age 26, provide preventative services and more. They are forbidden from discriminating based on existing conditions.

Small businesses that self-insure would face higher health costs if forced to purchase coverage through the ACA’s exchanges. Businesses already providing quality benefits shouldn’t be responsible for propping up the exchanges.

Nevertheless, some Democrats on Capitol Hill are calling for regulating stop-loss insurance as health insurance, thereby subjecting it to the same rules that govern exchange plans. Stop-loss insurance would immediately become unaffordable. As a result, self-insurance would, too.

Fortunately, the Self-Insurance Protection Act was introduced in March in both chambers of Congress, sponsored by Sen. Lamar Alexander (R., Tenn.), chairman of the Senate health committee, and Rep. Phil Roe (R., Tenn.), a medical doctor. The bill would simply preserve an employer’s ability to purchase stop-loss insurance by forbidding regulators from classifying it as health insurance.

The millions of Americans who depend on self-insurance are counting on lawmakers to approve the measure. These folks may not know they have self-funded plans, but they like them all the same.

The op-ed can be found at http://www.wsj.com/articles/remaking-companies-for-obamacare-1441234892