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Self-Insurance on the Rise and Health Care Law May Spur the Trend

By John Reichard, CQ HealthBeat Editor

November 28, 2012 -- A new analysis by the Employee Benefit Research Institute (EBRI) says self-insurance is a huge trend in employer-sponsored coverage that could become more pronounced in the wake of the health care law.

"In 2011, 58.5 percent of workers with health coverage were in self-insured plans, up from 40.9 percent in 1998," an EBRI summary of the study says.

For the most part, employers with 1,000 or more workers have driven the trend. Only 12 percent of firms with fewer than 50 employees were self-insured in most of the years examined in the study.

But there's much speculation that small employers seeking to get out from under some of the major requirements of the health care law (PL 111-148, PL 111-152) will choose to self-insure.

Self-insured plans must meet some, but certainly not all, health care law requirements.

According to a Congressional Research Service (CRS) analysis, they, like fully insured plans, can't impose annual or lifetime limits on medical payouts for enrollees. They must cover dependents up to age 26 and, starting in 2014, won't be able to exclude people with pre-existing medical conditions.

However, they are not subject to the requirement of the health care law that plans provide a minimum package of "essential health benefits," according to the CRS analysis. Nor are they subject to annual rate review or medical loss ratio rules requiring that certain percentages of the premium dollar be paid out for medical care or for quality-of-care improvements or else they have to pay rebates to enrollees.

"Employers generally, and small employers particularly, concerned about the rising cost of providing health coverage may view self-insurance as a better way to control expected cost increases," EBRI analyst Paul Fronstin says.

Under self-insurance, employers pay health claims out of their own coffers rather than paying premiums to an insurer that accepts the financial risks of paying for all covered medical services. They usually pay an administrative fee to health plans to process and adjudicate claims.

Historically, big employers have been more likely to self-insure because they can provide more uniform benefits across state lines if they do so, which lowers their administrative costs. Also, they don't have to comply with state benefit mandates, which means they don't have to cover as many services as some states would like them to. They also escape certain state taxes.

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