An unfamiliar term is arising in the small business health insurance market. Industry analysts are asking whether small businesses will “self-insure” rather than offer their employees a qualified health plan under the Affordable Care Act. Small businesses, in response, are asking what it means to self-insure.
To self-insure meant that the company took on the financial risk of healthcare costs of its employees. In this model, the employer pays out-of-pocket for the medical costs of its employees as they occur rather than paying a monthly premium to an insurance company who, in turn, would assume the responsibility of paying for medical costs of the employees. “Stop-loss” insurance plans are coupled with self-insurance. These stop loss plans would cover medical expenses exceeding a predetermined amount (e.g. $500,000 for all employees during a calendar year). Depending on the stop-loss policy, there may be limitations for medical costs for employees with certain pre-existing conditions or health problems.
Back in 2000, a report by Employee Benefit Research Institute (EBRI) estimated that 50 million employees and their dependents had healthcare provided through a self-insured employer. Previous to healthcare reform, businesses that self-insured their healthcare costs were typically very large companies. Small employers are now investigating self-insurance options for healthcare to compare the risks and benefits versus Affordable Care Act health plans. The option can be particularly attractive to employers with younger, more healthy employees.
The question of whether a company should self-insure is as much a philosophical question as a business question.
What Are the Considerations?
What Are the Potential Advantages?
Even though all of the requirements of the Affordable Care Act (ACA) do not apply to a nongrandfathered self-insured health plan, there are still several ACA requirements that do apply such as:
Among the ACA requirements that do not apply to self-insured health coverage are:
For a company interested in creating a self-insured group health plan, a third party administrator (TPA) can assist with supervising the plan, coordinating with a stop-loss policy, and contracting with a healthcare provider network. The TPA can also perform utilization reviews to adjust cash reserves and stop-loss coverage for the next calendar year of coverage.
For more information on the process of self-insurance, visit the Self-Insurance Institute of America at www.siia.org.