Small firms consider self-funding for flexibility, better data access

The Affordable Care Act, coupled with a desire for flexibility, is fuelling a movement toward self-insurance among smaller employers. Traditionally the domain of large employers, self-funded health plans are becoming an increasingly attractive alternative for employers with as few as 25 employees.

According to the 2013 Kaiser Family Foundation/Health Research & Educational Trust report on employer health benefits, 16% of workers at small firms — those with between three and 199 workers — are enrolled in health plans which are either partially or completely self-funded, compared to 83% of workers at larger companies. Six percent of firms offering fully insured plans, meanwhile, say they intend to self-insure because of the ACA.

The reasons for small employers to consider self-insurance are multiple. For one, the self-insurance model gives employers more control over their benefits, says Joe Berardo, CEO with MagnaCare, a health plan services company. This is becoming more appealing as the ACA’s essential health benefits mandate takes hold. For example, he says, a self-insured small employer covering six families – none of whom have children – can get away with offering a benefit plan that doesn’t cover pediatric dental and “certain things that are required in the fully insured world now, as part of the essential [health] benefits part of the legislation.”

Many carriers, meanwhile, “are designing their small group plans around the bronze, silver and gold plans [on exchanges], limiting the amount of networks, [and] not offering the benefits, essentially, that were being offered before,” says Sam Fleet, president of AmWins Group Benefits, a wholesale distributor of employee benefits and administrative services.

Lower premium taxes also make self-insurance an appealing route for employers. “There has been a pretty significant uptick in taxes that are being assessed to plans in the new health reform law,” says Berardo. “Those taxes in a self-insured plan are only payable on the stop-loss premium [portion of the plan],” which he estimates is about a third of the cost.

Better access to data is another reason for employers to consider self-funding. In a fully insured model, it’s very difficult for employers to get detailed data from the insurance company, says Fleet. “A fantasy football player has more information about the football players on their team available to them than an employer has on the health and welfare of their employee base,” he says.

And, finally, the desire for benefit plan consistency can play into an employer’s decision to self-insure. “A self-insured plan can have a consistent benefit plan across multiple states,” says Berardo. “If you are a New York City-based business and you have people commuting from Connecticut and New Jersey, as well as New York, you can have one standard plan design, rather than being subject to three different state mandates.”

Risk profile

Before making the leap to self-insurance, it’s important for employers to understand their risk profile, says Fleet. His firm recently launched an entire practice devoted to helping small employers figure out if self-funding is a viable option. The company works with small employers to determine their risk profiles by administering employee health risk assessments. The HRAs are then compiled and compared to an actuarial database developed over a 10-year period, based on more than 15 million lives, over 1,500 medical conditions and more than 2,000 prescribed drugs. Then, for employers with better-than-average risk profiles, self-funding is recommended.

For cautious employers, uncertain about jumping in the self-insured pool with both feet, there are ways of just dipping a toe in the water, says Fleet.

“There are various forms of self-funding which enable you to self-fund [so that] you’re not taking all of the risk. You can take some part of the risk,” he says. “Then eventually, over time, you keep increasing your specific deductible and become more self-funded, if you will.”

And while nothing is stopping an employer from flip-flopping back and forth from fully insuring their health plan to self-insuring it, Berardo says it’s not a common practice. “I have definitely seen cases where somebody has been self-insured for two or three years, they have a really bad year with a bunch of catastrophic things happening in their plan, and they jumped back to [the] fully insured [model] just because they got squeamish,” he says. Still, he estimates that 90% of the employers he works with who make the move to self-funding stay there.

Lower costs

And one medical provider in New York is hoping to attract self-funded employers whose employees need orthopedic surgery. Regency Healthcare, a new cash-based clinic that opened last fall in Manhattan, lists prices for its surgical services on its website, regencyhealthnyc.com.

This model is an attractive alternative to insurance-based health care, says Regency’s founder, orthopedic surgeon Dr. Robert Haar, because “our prices are significantly lower than what insurance companies charge, what hospitals charge and what other practices charge because they need to [use] insurance-pricing models,” he says. “These self-funded companies, whatever their size may be, [can be made] aware that this is an alternative to the insurance-based health care.”

Inpatient charges at hospitals vary widely. In an effort to promote cost transparency, the Centers for Medicare and Medicaid Services reported for the first time last year information comparing the charges for services that may be provided during the 100 most common Medicare inpatient stays. Average inpatient charges for services a hospital may provide in connection with a joint replacement, for example, range from a low of $5,300 at a hospital in Ada, Okla., to a high of $223,000 at a hospital in Monterey Park, Calif. Regency Healthcare’s fee for an average arthroscopic knee procedure, meanwhile, is $4,950.

Haar believes dissatisfaction with Obamacare and a growing interest in self-pay medicine will drive growth of clinics like his. “This is a free-market way of controlling health costs, which is a significant issue facing the country in general and employers and individuals more specifically.”

And Haar says he has plans to expand to other parts of the country once the facility in Manhattan gets off the ground.