Self-insurance trend could push more businesses to independent and local clinical laboratories if self-insurers prefer to offer employees local access to testing services

Three years after the roll out of the Affordable Care Act’s (ACA’s) major provisions, more small and midsize companies may be opting to self-insure their employee health plans rather than face the coverage mandates and administrative costs imposed by Obamacare, a recent study found. It is uncertain how this trend will improve the access clinical laboratories and pathology groups have with these patients.

The Employee Benefit Research Institute (EBRI) study looked at trends in private sector self-insured health plans between 1996-2015, with a focus on 2013-2015, to assess whether the ACA might have affected those trends.

Researchers analyzed survey data from nearly 40,000 employers that participated in the US Census Bureau’s Medical Expenditure Panel Survey Insurance/Employer Component. They found that from 2013 to 2015:

• The percentage of small employers (fewer than 100 employees) that offered at least one self-insured health plan increased from 13.3% to 14.2%; and

• Among midsize employers (100 to 499 employees) that number increased from 25.3% to 30.1%; however

• Self-funding by large employers (500 or more employees) decreased from 83.9% to 80.4%.

“The expectation was the Affordable Care Act would drive more midsized and smaller employers in this direction. I think it is interesting that what we expected to see is finally showing up,” said Paul Fronstin, PhD, Director of EBRI’s Health Research and Education Program and author of the report, in Kaiser Health News.

Avoiding ACA Administrative Costs and Penalties by Self-Funding

Small and medium-size businesses traditionally purchase group health coverage from insurers rather than self-fund. This generally requires they keep the plan premiums and pay the actual cost of claims themselves, while contracting with an insurance company or third-party administrator to design the plan, process the claims, and pay administrative services. Businesses can purchase a separate reinsurance policy from an insurance company to cover extremely large claims.

Paul Fronstin, PhD (above), Director of the Health, Research and Education Program at the Employee Benefit Research Institute, is not surprised his organization’s latest report on self-funding of health plans shows a trend toward self-insurance by small and midsize companies. “The expectation was the Affordable Care Act would drive more midsized and smaller employers in this direction … what we expected is showing up.” (Photo copyright: Employee Benefit Research Institute.)

Paul Fronstin, PhD (above), Director of the Health, Research and Education Program at the Employee Benefit Research Institute, is not surprised his organization’s latest report on self-funding of health plans shows a trend toward self-insurance by small and midsize companies. “The expectation was the Affordable Care Act would drive more midsized and smaller employers in this direction … what we expected is showing up.” (Photo copyright: Employee Benefit Research Institute.)

While the ACA has driven up the cost of providing health coverage for many small firms, according to CICA News, small business owners can sidestep certain ACA provisions, including the “essential health benefits” mandate, by self-insuring.

It is important for clinical laboratory managers and pathologists watching the consequences of the ACA to understand that the phenomenon of small insurers opting to self-insure is due to how the ACA mandates distort the free-market choices that would otherwise be available to these employers, including:

• Small employers don’t like the ACA’s mandate that “one health insurance plan should work for all individuals, regardless of age, family needs, etc.”

• Small employers cannot afford the big price hikes in the health premiums of the types of health insurance plans mandated by ACA.

• Small employers are responding, in a friendly way, to the fact that their employees strongly express their wish to “keep the insurance they have and access to the doctors they like.”

“When [self-funded arrangements are] properly designed, there are several ways an employer can win,” noted Sean McGuire, CEO of E.D. Bellis, a benefits compliance and consulting firm in Omaha, Neb., in a recent online post. “Examples … include eliminating community rating, avoiding essential health benefit mandates required by the ACA and, perhaps most importantly, the avoidance of adverse selection in the fully insured marketplace.”

In addition, businesses that self-insure retain the claim reserves traditionally held by insurance companies and keep the interest on those reserves, McGuire said.

Increased Deductibles Slows Premium Growth

According to the Wall Street Journal (WSJ) the average cost of health coverage offered by employers rose 3% in 2016 to $18,142 for a family plan. Employees paid 30% of the premiums for a family plan—an average of $5,277 annually—compared with 29% last year, according to the Kaiser Family Foundation’s (KFF’s) “2016 Employer Health Benefits Survey.”

“We’re seeing premiums rising at historically slow rates, which helps workers and employers alike, but it’s made possible in part by the more rapid rise in the deductibles workers must pay,” KFF President and CEO Drew Altman, PhD said in a statement discussing the survey results.

Beginning this year, the ACA required companies with at least 50 full-time equivalent employees to offer health benefits to full-time workers and dependents up to age 26 or pay a fine of up to $2,000 per employee. The KFF survey found 93% of companies with at least 50 employees offer health benefits to at least some of their workers, with most plans meeting ACA requirements to provide “affordable” coverage that offers at least “minimum” value.

Barry Sloane, President and Chief Executive of Newtek Business Services (NASDAQ:NEWT), advised small businesses to “expect the unexpected” when responding to ACA requirements. “Plan as best as you can, because the act is constantly changing,” Sloane said in a U.S. News article.

Less Choice, Rising Premiums, Fewer Networks

Sloane predicts small business owners who purchase healthcare coverage through traditional plans will see premiums continue to increase while the number of plans serving small businesses shrinks. As an example, he pointed to Health Republic Insurance of New York, which was the largest nonprofit cooperative created under the ACA and a small business insurer. It was shut down last fall. “Small businesses should expect less choice, rising premiums, and fewer networks,” Sloane said. “Health Republic Insurance of New York is the first of many carriers that aren’t going to be able to afford to provide the coverage.”

Yet not everyone believes small businesses should take on the financial risks of self-insuring even though it may appear advantageous to do so.

“For small businesses subject to the [ACA’s] employer mandate, self-funding offers both great advantages and some treacherous disadvantages,” warned Robert Pozen, Senior Lecturer at MIT Sloan School of Management, and former Chairman of MFS Investment Management, in CICA News. “Since stop-loss policies are issued on an annual basis without guaranteed renewal, an unexpected rise in the healthcare costs at a small firm can lead to much higher premiums the following year or an abrupt cancellation of the policy altogether.”

Now that most medical laboratory professionals and pathologists have been able to watch the consequences of the Affordable Care Act on the private health insurance market since it became law in 2010, it should be clear that several important elements of this far-reaching legislation are failing to meet the expectations of a large number of Americans. That is a separate issue from how the ACA has triggered major increases in health insurance premium costs.

This perspective should be included when clinical labs and pathology groups do their strategic business and clinical planning. It is in the best interest of every clinical lab organization in the United States to have a healthcare system that meets the expectations of consumers, delivers a high quality of access and clinical care, and is affordable. In such a healthcare system, providers, including labs, would be paid reasonable fees and would have equal opportunity to compete for patient referrals.

—Andrea Downing Peck

Related Information:

Self-Health Insured Health Plans: Recent Trends by Firm Size, 1996-2015

Self-Insured Growing in Small, Medium-Sized Firms

More Small, Midsized Firms Choose to Pay Workers’ Medical Costs Directly

Medical Expenditure Panel Survey: Insurance/Employer Component

Small and Midsize Firms Choose to Self-Insure

2016 Employer Health Benefits Survey

Average Annual Workplace Family Health Premiums Rise Modest 3% to $18,142 in 2016; More Workers Enroll in High-Deductible Plans with Savings Options Over Past Two Years

ACA Changes: More Small Business Owners to Offer Coverage, Face Increased Compliance

Regulators to Shut Down Health Republic Insurance of New York