Self Funding and PPACA

David Ortloff, from Dillingham, A UBA Partner Firm

An article came out in the Sunday New York Times recently ( 2/17/13) titled ‘Some Employers Could Opt Out of Insurance Market, Raising Others’ Costs.’ Interesting care reform image

The Times points out how companies with relatively young, healthy employees will likely be better off opting out of the regular health insurance market to avoid some proposed new elements and restrictions of the PPACA legislation. Among many things, these proposed new elements will significantly raise the rates for younger employees with a maximum 3-to-1 ratio of rates between younger and older employees. They also take away the price break that healthier companies have received up to this point for having fewer medical claims.

The Times writes of concerns that younger, healthier groups will likely opt out of the traditional insurance market, therefore leaving the older, less healthy employers in the traditional insurance marketplace, which would then drive up costs within that space. 

In reality, the trend of younger, healthier companies moving to self-funding has been going on for years. In fact, the Times pointed out that a recent study from the nonpartisan Employee Benefit Research Institute found that about 59 percent of private-sector workers with health coverage were in self-insured plans in 2011, up from 41 percent in 1998. That’s a 44 percent increase in the past 13 years.

With some specific proposed regulations of the PPACA legislation finally being released late in 2012, the health insurance landscape of the future makes the self-funding approach significantly more attractive for smaller employers than before. 

So, just what is self-insurance? When companies are self-insured, they assume more risk by actually paying the claims filed by employees and health care providers. The risk is mitigated by an employer purchasing stop loss insurance that protects a company against large claims that cap out at, say, $50,000 per person on the plan or an aggregate amount that kicks in if all employee claims added together hit a certain amount for the plan year. 

The bottom line is that self-insuring your group medical plan might be a way to avoid additional costs and constraints of PPACA. If you have more than 50 employees that are relatively young and healthy, as well as the financial ability to pay a more fluctuating monthly cost, self-insuring is an option you should at least look into.

Download UBA’s Self-Funding White Paper: Small Businesses Blaze a New Trail with Self-Funding – Reform and rising costs make small and midsized companies consider a new way to pay for employee health care.