According to the article which follows, a self-funded or self-insured
health plan is one where the employer assumes the financial risk of covering
its employees, paying medical claims from its own resources. Employers self-fund
insurance to save money. Employers that self-fund may be able
to save money because they can limit the risk pool to their own employees,
avoid state taxes on insurance companies� premium revenues, and have complete
control over benefit packages and disease prevention/management programs.
Many employers that self-fund purchase stop-loss insurance to limit
risk exposure beyond a stated amount for either catastrophic loss on individual
employees or group claims.
The federal Employee Retirement Income Security Act (ERISA) of 1974
exempts self-funded health plans from compliance with state laws and regulations
including the submission of data to a state�s Division of Insurance.
The study found that self-funded plans tended to be more generous.
From comments on the message board of this site, Nabor's insurance is not
generous, it is not even acceptable.
If you have unpaid insurance
claims, go to this site to learn how to make a formal complaint.
Division of Insurance
The Division of Insurance enforces Alaska insurance laws and assists consumers
directly by responding to insurance inquiries and investigating
complaints against insurance companies and producers. The Consumer
Services section of the Division is located in the Anchorage office
and is responsible for handling consumer complaints and inquiries.
A Consumer Service
specialist will review the submitted complaint information, which
should include copies of any correspondence, policies, or materials
relating to your insurance problem, such as itemized medical bills,
explanation of benefit sheets, property loss forms, vehicle appraisals,
policy reports, etc.
If a violation of Alaska
insurance law is found, the Consumer Service specialist will request
that the insurance company or producer correct the problem. If no
violation of Alaska law is found, a Consumer Service specialist
will close the complaint. In each case you will receive a written
response directly from the company or from the Consumer Specialist
regarding the results of the complaint investigation.
Self-Funded and Fully-Insured Health Insurance
Plans: How Do They Differ?
Massachusetts Division of Health Care Finance and
Policy
February 19, 2003
Summary: Interest in employer-sponsored health plans has grown
since so little is known about plans that are funded by an employer. Self-funded
or self-insured health plans are ones where the employer assumes the financial
risk of covering its employees, paying medical claims from its own resources.
A health plan is fully-insured if it is purchased from an insurance company
or other underwriter that assumes full risk for medical expenses. Results
from the 2001 Massachusetts Employer Health Insurance Survey demonstrated
that large companies self-fund more often than small ones and the benefit
packages for self-funded plans tend to be more generous even though the reason
many employers self-fund is to save money. While this study represents only
the beginning of the analyses of these plans, it seems that policymakers
may not have to worry as much about lack of control over the plans since
many self-funded plans offer adequate coverage.
Only federal laws and regulations govern self-funded plans even though state
health insurance laws traditionally are more comprehensive. The federal Employee
Retirement Income Security Act (ERISA) of 1974 exempts self-funded health
plans from compliance with state laws and regulations including the submission
of data to a state�s Division of Insurance. Due to the lack of published
data and state regulation, policymakers always are interested in learning
more about self-funded health plans.
According to results from the 2001 Massachusetts Employer Health Insurance
Survey, 17% of all private-sector Massachusetts establishments that offered
health insurance self-funded at least one health plan. Employees in self-funded
plans represented 30% of all employees in employer-sponsored plans.1 Many
employers that self-fund (especially smaller ones) purchase stop-loss insurance
to limit risk exposure beyond a stated amount for either catastrophic loss
on individual employees or group claims. The 2001 Massachusetts employer
survey found that 52% of employers with self-funded plans purchased stop-loss
insurance.
This analysis will examine employers� motivation for choosing to either self-fund
or fully-insure health plans, and the factors that may relate to this decision,
as well as the impact of the decision on health benefits and costs.
Methodology
As part of a federal grant 1 awarded to Massachusetts, the Division of Health
Care Finance and Policy sponsored a telephone survey of private-sector Massachusetts
establishments (single locations) regarding health insurance. The University
of Massachusetts Center for Survey Research conducted the survey of over
1000 randomly selected private-sector establishments from April to November
2001. The sample was stratified by establishment size and included employers
with at least two employees. Small establishments are defined as those with
fewer than 50 employees while large establishments are defined as those employing
50 or more persons. Responses to survey questions were weighted to reflect
the relative prevalence of that size establishment within Massachusetts.
The survey included general questions as well as details regarding the employer�s
most popular plan (i.e., the plan with the largest number of members). Fifty-five
percent of the establishments contacted responded to the survey.
Motivation for Self-funding
The 2001 Massachusetts Employer Health Insurance Survey included questions
about self-funding to learn more about the extent of this practice and benefits
provided, exploring how it differs from the fully-insured market. The survey
also addressed an employer�s motivation for choosing to self-fund its health
plans. Employers that self-fund may be able to save money because they can
limit the risk pool to their own employees, avoid state taxes on insurance
companies� premium revenues, and have complete control over benefit packages
and disease prevention/management programs.2 In addition, some employers
may self-fund to access claims data allowing employers �to understand the
true costs of their health care plans and to tailor those plans accordingly.�
3
Whereas some experts argue that employers self-fund solely to avoid covering
state mandates, Massachusetts survey results showed that the most common
reason for self-funding was the expected savings overall, while being �free
from state mandates� ranked fourth. However, some of the savings may be attributed
to the fact that self-funded plans are not required to comply with state
laws, including mandates (see Figure 1).
Size of Establishment
The size of an establishment (i.e., number of workers employed) is the most
important indicator of whether an establishment decides to self-fund one
or more of its health plans. Establishments with 50 or more employees (i.e.,
mid-to-large sized employers) self-fund at twice the rate of ones with fewer
than 50 employees (i.e., small employers) (30% vs. 15%) (see Figure 2). Employers
with more employees are more likely to self-fund because the financial risk
is spread across more employees and their budgets are large enough to absorb
the risk. Among large establishments in Massachusetts, the percent with one
or more self-funded plans increases with increasing size (i.e., 50-99: 17%,
100-249: 41%, 250+: 45%).
Number of Plans Offered and Length of Time of Self-funding Data from the
Massachusetts employer survey found that whether an establishment self-funds
has virtually no bearing on the number of health plans that establishment
offers its employees. Instead, the size of an establishment is the most important
indicator of the number of health plans it offers to employees, with smaller
establishments offering fewer plan choices. Therefore, since there were approximately
153,624 small establishments with fewer than 50 employees and only 11,166
large establishments with 50 or more employees as of March 2000, 4 the majority
(77%) of establishments in the state that offer health insurance offer only
one plan. Almost two-thirds (62%) of establishments that self-fund have self-funded
their most popular plan long-term (i.e., more than five years), while 22%
have self-funded between one and five years. The remaining 16% of establishments
had self-funded for less than one year.
Premiums
National studies have indicated a steep increase in health plan premium cost
since the mid-1990�s, with no sign of slowing. Monthly premiums for employer-sponsored
health insurance have consistently risen during past years; in 1999 they
rose 4.8%, they rose another 8.3% in 2000, another 11% in 2001, and in 2002
they rose 12.7%, significantly outpacing inflation.5 The Massachusetts employer
survey found that some employers have responded to escalating premiums by
increasing employees� out-of-pocket payments and in some cases increasing
their share of premiums.
Differences in premiums between fully-insured and self-funded plans exist,
though the differences are not always what was expected (i.e. premium cost
for self-funded plans is not always lower than for fully-insured plans).
In 2001, the average total premium for individual coverage was higher for
fully-insured plans than for self-funded plans ($304 vs. $277), whereas the
average total premium for family coverage was generally higher for self-funded
plans ($692 vs. $647). The average employee share of individual coverage
was the same for self-funded and fully-insured plans (19%), but the average
employee share of family coverage represented a higher percent for fully-insured
plans than for self-funded ones (28% vs. 22%) (see Figure 3). The higher
average employee share of the premium for family coverage under fully-insured
plans might be a function of employer size, since smaller employers usually
fully-insure their health plans and usually require employees to pay a higher
percent of the premium. In Massachusetts from 2000 to 2001, the total premium
for employer-sponsored individual coverage increased 23% on average for self-funded
plans and 19% for fully-insured plans. For family coverage, the increases
were 19% and 16%, respectively.
Employee contributions increased 34% for self-funded individual plans compared
with 18% for fully-insured ones. In contrast, employee contributions increased
only 16% for self-funded family plans and 26% for fully-insured family plans.
Employer contributions increased at similar rates for self-funded and fully-insured
individual plans (21% and 20%). Employer contributions increased 21% for
self-funded family plans compared with 13% for fully-insured ones.
Note: Premium data is based on the establishment�s most popular health plan.
Copayments
The average copayments for physician visits, emergency department visits,
and prescription drugs do not vary greatly based on whether a plan is self-funded
or fully-insured. Slightly more fully-insured plans increased copayments
for physician services (32% vs. 25%) in 2001, and more than a third of both
types of plans introduced new pharmacy copayment structures such as a three-tiered
structure. A three-tiered structure means that drugs are separated into three
categories with different copayments depending on how much a drug costs or
whether it is on the health plan�s formulary list.
Conclusions
The survey results confirmed that the most important determinant of self-funding
is employer size. Employers with 50 or more employees are much more likely
to self-fund (30% self-fund) than employers with fewer than 50 employees.
The likelihood of self-funding increases for employers with even more employees,
for example, 45% of employers with 250 or more employees choose to self-fund.
This analysis also illustrates that the concern many policymakers have about
self-funded plans being exempt from state laws and regulations may be unfounded
since most self-funded plans� benefit packages are similar to those of fully
insured plans.
Since so little is known about self-funded health plans and employers that
self-fund, the 2001 Massachusetts employer survey represented a solid step
toward bridging the information gap between self-funded and fully-insured
plans. Staff for this analysis:
John Caia
Elizabeth K. Robinson
Maxine Schuster
Source: Massachusetts Division of Health Care Finance and Policy, 2001 Employer
Health Insurance Survey.
________________
1 2001 MA Employer Survey Results: Graph and Table Compendium. www.mass.gov/hrsa
2 Baker, Sharon, �Self-Funded HMOs on the Rise,� Managed Care May 2002: 46D-H.
3 Ibid.
4 Massachusetts Division of Employment and Training, March 2000. Note: Totals
include federal, state and local government and do not include the self-employed.
5 The Kaiser Family Foundation and Health Research and Educational Trust,
Survey of Employer-Sponsored Health Benefits: 2001 Summary of Findings.
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