No Matter the Risks, More Employers Are Choosing Self-funded Plans

The self-funded model of employer-sponsored insurance (ESI) continues to grow, a new study in Health Affairs has found. The study says that self-funded insurance plans—which means the employer collects premiums and bears responsibility for paying claims—rose from 55 percent of the market in 2015 to 60 percent of the market in 2021. Most of the growth came in states that previously had a lower share of self-funded plans, but the model saw growth across most states.

“We found that the nationwide increase in the prevalence of self-funded ESI was widespread, with most states (88%) and counties (78.2%) experiencing an increase in prevalence from 2015 to 2021,” the study says. The study notes that this model carries more risk for employers as sponsors of health plans, and that they may be at a disadvantage when negotiating for lower prices. In addition, the study adds, researchers and policymakers lack data when studying these questions, since ERISA laws exempt self-insured plans from many state regulations.

The Majority of Enrollees Are in Self-Funded Plans Across 80% of U.S. Counties  

The study says that for employer-sponsored insurance plans, a majority of enrollees were in self-funded plans in 2,532 counties in the U.S. in 2021. In addition, 475 counties (15.1% of counties) had more than 75 percent of ESI enrollees in a self-funded plan, while only 85 counties (2.7%) had fewer than 25 percent of enrollees in a self-funded plan.

Most of the growth seems to have come in counties that had a smaller percentage of enrollees in self-funded plans in 2015. Growth was concentrated in states where the share of ESI enrollment was below 50 percent in 2015. In those states, the self-funded share rose from 41% percent in 2015 to 55 percent in 2021.

The study notes the wide variation among states, even neighboring states. “Every county in Minnesota had a prevalence [of self-funded ESI enrollees] greater than 50 percent, and 58 of 87 counties in the state had a prevalence greater than 75 percent. Neighboring North Dakota, in contrast, had no counties with greater than 50 percent enrollment in self-funded plans and had 38 of 53 counties with a prevalence of 25 percent or lower.”

Large Insurers Protect Nearly Two-thirds of Enrollees

The report also outlined the insurers that have the highest proportion of self-funded enrollee coverage. The researchers found that self-funded enrollment represented more than 60 percent of total ESI enrollment for these insurers in 2021.

The five largest insurers and third-party administrators (TPAs) in the market that year were Health Care Service Corporation, Cigna, CVS Health (formerly Aetna), UnitedHealth Group, and Elevance Health (formerly Anthem).

“Elevance Health was the largest insurer or TPA in the self-funded market, with more than 17 million enrollees in self-funded plans (19 percent of the total market),” the report says. “Between 2015 and 2021, CVS Health’s self-funded ESI enrollment grew the fastest among these companies, from 68 percent to 81 percent of its total ESI enrollment. Collectively, these five companies enrolled 71 percent of the self-funded ESI market in 2021.” The report added that other large insurers and TPAs in the market included Highmark and Blue Cross Blue Shield plans in Michigan, Alabama, and New Jersey.

Another finding of the study is that there are highly concentrated markets in many high-population areas. It says that most core-based statistical areas—counties that have at least one large city and high-population areas that are economically integrated—also have highly concentrated self-funded insurer and TPA markets.

The report says nearly 60 percent of these high-population areas have highly concentrated markets for self-funded plans. “A total of 36.2 percent of self-funded ESI enrollees in core-based statistical areas lived in highly concentrated markets, whereas only 4.2 percent lived in core-based statistical areas with competitive self-funded markets,” the report says.

Self-Funded Plans Have More Risk

The higher risk that employers face in this market is linked to the fact that they have less negotiating power, the study says. “Although self-funded employers’ incentives are aligned with negotiating lower prices for their plans, they generally lack market power to do so effectively,” the report says.

“Insurers bear less risk in this market,” the report says. “There is emerging evidence that insurers may negotiate higher prices in the self-funded market than in the fully insured market, which could stem from their attenuated incentives to negotiate lower prices in this market.”

Mark Katz Meiselbach, a researcher with John Hopkins University and one of the authors of the study notes that the ERISA protections which allow self-funded plans to avoid state regulations also mean there are fewer opportunities to study data from the plans—and, therefore, less oversight from regulators. He adds that it would require federal oversight to change this but that such a change seems unlikely in the near future.

For now, he says, the data that is available indicates the current trends will continue. “This is a growing market and likely will continue to grow. Employers should critically assess whether self-funding helps their bottom line,” he says.

From: BenefitsPRO