Report: self-insurance to avoid health-law mandates may not be ‘viable option’ for small firms

It’s not widely known if many small employers will switch to self-insurance to avoid some requirements in the Patient Protection and Affordable Care Act of 2010 (ACA), but stakeholders agree that self-insuring is financially and legally risky for small businesses with fewer than 50 employees.

That’s the finding in a new report from the Washington, D.C.–based Urban Institute and Georgetown University Health Policy Institute published last month. The Robert Wood Johnson Foundation released the report April 8.

Headquartered in Princeton, N.J., the Robert Wood Johnson Foundation “focuses its attention and resources on health and health-care challenges both broad and specific,” according to its website.

The Urban Institute gathers data, conducts research, evaluates programs, offers technical assistance overseas, and educates Americans on social and economic issues to foster sound public policy and effective government, according to its website.

The report, entitled “Factors Affecting Self-Funding by Small Employers: Views from the Market,” defines small employers as those having 50 or fewer employees.

With support from the Robert Wood Johnson Foundation, the Urban Institute is undertaking a monitoring and tracking project to examine the implementation and effects of ACA, the national health-care reform legislation signed into law in March 2010. The project began in May 2011 and will continue “over several years,” according to the report.

The Urban Institute will document changes to the implementation of national health reform in 10 states, including New York.

Researchers interviewed insiders in those 10 states to assess attitudes toward and trends in self-insurance for smaller employers, according to a news release about the report. 

Most of those interviewed believe that self-insuring, even with stop-loss policies (which protect employers from unexpectedly high health-care costs), could expose the smallest businesses “to considerable, and unpredictable, financial and legal risks,” according to the news release.

By self-funding, a small employer could bypass some of ACA’s market reforms that apply only to the fully insured market, such as modified-community rating, coverage of essential health benefits, and limits on cost sharing, as well as the health-insurer fee, which does not apply to self-funded health plans, according to the report.

Beginning in 2014, all insurers selling personal or small-group products must use the modified-community rating and adjust cost based only on family size, subscriber location, tobacco use, and age.

Despite the potential advantages, it doesn’t appear that self-insuring their workforce is “a viable option” for smaller employers and is not happening to a significant degree, Kevin Lucia, lead author of the Urban Institute-Georgetown report, said in a news release about the report.

“The health insurance marketplace for small businesses will dramatically change between now and 2016, and many small businesses will have new options for finding and offering affordable insurance options”

None of the stakeholders interviewed for the report thought small employers were self-funding in significant numbers, and researchers found that few could predict how much or how quickly this number might increase in the future, according to the news release.

Data are scarce, however, as states are not closely monitoring this market.

Impact on middle-market companies

The Urban Institute-Georgetown University report examined the small-group market defined as companies with 50 employees or fewer.

Syracuse–based POMCO Group is a benefits administrator for self-funded health and risk-management plans for mid- to large-sized companies, according to its website.

The firm generally administers self-insurance plans for companies with between 50 and 200 employees, says Stacy Hotaling, director of business development for the POMCO Group.

POMCO Group has seen a change in the industry market place over the past four years, but the upcoming requirements in the health-care reform law were not a factor in the marketplace discontent, says Hotaling.

The smaller groups (which Hotaling defined as 50 to 200 employees) are “fed up” with the annual double-digit increases they have been seeing for health-care coverage.

Those companies are also “restricted from any data or reports or utilization on their experience” that can tell them why or where the money is going, Hotaling says.

And without having those tools and resources, they’re somewhat “handcuffed” because they can’t make educated decisions about their plan design and what they should be doing to help change that pattern of high health-insurance utilization, Hotaling added.

In the past couple years, even ahead of all the requirement and changes ahead under the Affordable Care Act, companies have been calling POMCO asking about self-funding and wanting more information.

“Just trying to be more educated on what it is,” Hotaling says.

POMCO has seen an increase in business in its small-group plans (50-200 enrollees) since 2010, the company said in a follow-up email message.

Requests for proposals on self-insured plans for groups of this size have more than doubled in the same timeframe, according to the firm.

As employer groups continue to search for options to pay for “escalating” insurance costs, and are faced with taxes that ACA imposes on fully insured plans, POMCO anticipates the number of inquiries from these types of firms to continue rising.

Contact Reinhardt at ereinhardt@cnybj.com