Reform Update: Businesses seeing self-funded plans as way to dodge ACA

The rate of self-funded health insurance among smaller businesses has remained relatively stable during the past decade, but that may change soon. Many businesses see self-funding as a way to skirt requirements of the healthcare reform law.

In response, carriers are offering self-insured plans to much smaller groups than the larger groups that have historically marketed such plans. UnitedHealth Group has even dropped its minimum size for self-insured products from 100 employees to as low as 10.

The plans are becoming particularly attractive because they're exempt from the new excise tax on health insurance premiums under the Patient Protection and Affordable Care Act, as well as the law's minimum set of “essential benefits” and limit on higher premiums for older enrollees.

In self-funded plans, the employer is responsible for funding the benefits that are paid out in claims, and the insurer primarily serves as a third-party administrator. To prevent an employer from getting into a situation where they don't have enough money to pay out claims, they also buy stop-loss insurance, which kicks in when an employer pays out a certain amount of claims and the stop-loss carrier pays the rest after that.

Cigna is also expanding its self-insured offering to smaller businesses. The carrier's Select Segment, which targets employers with between 51 and 250 employees, offers both fully and self-funded options. Cigna spokeswoman Amy Turkington says slightly more than 50% of the customers in that segment go for self-funded plans. She added that in 26 states and the District of Columbia, self-funded plans are offered to companies with as few as 25 employees.

In April, Aetna unveiled a new self-funded offering for customers with between 100 and 500 lives known as Aetna Funding Advantage, and is even touting the benefits of self-funding in avoiding new insurance regulations and taxes in its literature to potential clients. “With AFA, you experience all the benefits of a traditional funding arrangement—no state benefit mandate and no charge for a new insurance tax under healthcare reform,” one document states.

Joseph Berardo Jr., CEO of MagnaCare, which focuses on offering self-insured plans to businesses in New York and New Jersey, said that self-insurance is especially attractive to smaller companies that have a relatively healthy workforce as they will not have to pay out much in claims. He added that in New York, only businesses with 50 or more employees can self-insure, while in New Jersey, companies with as few as 15 workers can.

“It's clearly been happening,” Berardo says of growing interest in self-insurance from some companies. “It really gives (businesses) more flexibility in plan design, and clearly there is less required as it relates” to mandates.

However, the trend may take a while to catch on. A Kaiser Family Foundation study released on Tuesday found that only 6% of companies that now have fully funded plans said they plan to self-insure in 2014—83% said they would not, and another 11% were unsure. A separate Kaiser study released this year found that only 16% of small employers—those with less than 200 employees—currently self-insure.

But if more small companies go with self-funding, it could spell problems for the small-business SHOP exchanges each state will have. Since many companies with relatively healthy employees may get a better deal through self-insurance, those healthy individuals would not enter SHOP exchanges, potentially undermining the risk pool there.

HHS' proposed rule to establish the Patient Protection and Affordable Care Act's Basic Health Program is under review at the Office of Management Budget, although that doesn't necessarily mean the department will release the regulation any time soon. “Sometimes things stay at OMB a couple of months; sometimes they come out pretty quickly,” said Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities, a left-of-center think tank. The program would allow states to offer public insurance to people whose income is too high to qualify for Medicaid, but is also below 200% of the federal poverty level. If states implement the program, they'll receive 95% of what the federal government would have spent on premium and cost-sharing reductions for Basic Health Program enrollees if they had opted to buy coverage through the exchanges. Earlier this year, the administration announced the program would be delayed until 2015. Park says some are concerned about what will happen to the exchanges—in terms of risk pools and insurer participation—if people are enrolled instead in the Basic Health Program. “It has a lot of promise and could provide more affordable coverage for beneficiaries,” Park said, “but you have to assess all of the pros and cons. For some states, you would provide less costly care.”

Sens. Tammy Baldwin (D-Wis.) and Mike Crapo (R-Idaho) sent a letter Friday to Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Orrin Hatch (R-Utah) that expresses strong opposition to a provision in President Barack Obama's fiscal year 2014 budget proposal that would cut reimbursement levels for the nation's critical-access hospitals. The letter—signed by 20 other senators from both parties representing 15 states—also mentions last week's report from HHS' inspector general's office. “The estimated savings from the CAH 10-mile designation are about one-hundredth of one percent of 10-year Medicare spending,” the senators wrote. “Additionally, we think these savings are overstated because many patients will likely be redirected to expensive tertiary hospitals whose disproportionate share hospital and indirect medical education adjustments will limit government savings.”

HHS Secretary Kathleen Sebelius was in Philadelphia on Thursday to recognize more than 25 Pennsylvania organizations and businesses that have volunteered to help uninsured Americans seek healthcare coverage through the insurance exchanges. Sebelius appeared at an event hosted by Congreso de Latinos Unidos, one of the groups that make up “Champions for Coverage,” an organization that represents community health centers, hospitals, civic organizations and bloggers.

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