What Does It Mean if Your Employer Has Self-Insurance?

It costs a lot of money for employers to offer health insurance coverage to their employees.  Even so, they do it for many reasons including to remain a competitive employer, to show that they care for their employees, and often, because it is required by law.  In 2014, as even more employers will be required to offer insurance plans to their workers, they will also be hit with a healthcare tax from the Affordable Care Act.  In the Med City News article, “Why self-insurance is the best way to reduce the hit of the Obamacare tax,” Joseph Berardo discusses why so many companies are now self-insuring rather than using health insurance carriers.  This type of insurance gives employers more flexibility and allows multiple cost-cutting measures.  Companies can make a specific plan that works for their workforce, they are able to maximize their cash flow because they don’t rely on prepayment of claims, they save up to 3% right away with an exemption from state taxes, and they save money by not paying extra carrier charges like profit sharing.

Catastrophic claims are challenging for self-insured plans, so most companies buy stop-loss insurance that will cover unexpected catastrophic claims like the cancer treatment of an employee.  Small group insurance plans and individual health insurance plans could end up seeing greater increases in their premiums as more large employers start to self-insure and avoid tax increases.  This new health insurance tax will increase each year based upon the cost of premiums.  The Congressional Budget Office says the new taxes are likely to be passed on to consumers through increasing premiums rather than paid for by the insurance companies to which they are directed.  Increases will be around 2% next year and closer to 4% by 2023.

Those in the individual insurance market could see decade long increases of $5,000 for family coverage.  Family coverage increases for small group plans in the same time frame is around $6,800.  Larger employer premium increases for family plans over a decade are more than $7,000.  In addition to the increasing taxes, employers face some other challenges with the passing of the Affordable Care Act.  They have to offer more essential health benefits, more comprehensive coverage, they’re under the jurisdiction of the state, and they have to make sure that employees are getting a certain value for each dollar spent.  But self-insured plans avoid a lot of the downsides worrying employers about the changes starting next year.  Just as we mentioned in our blog earlier this month, many large employers are self-insuring to avoid following state regulations and taxes as well.  I don’t know if this is any type of solution to the health insurance crisis in America, but it is a trend likely to continue.

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