“Self-Insurance” Allows Ohio Businesses New Flexibility in Health Plans

Oct 30, 2013

Southwest Ohio businesses have a new health care option on the table: so-called “self-insurance” allows companies to cut out the middle man.

The South Metro Regional Chamber of Commerce in Miamisburg has signed up to give its members access to a national self-insurance pool with hundreds of other businesses, which chamber director Julia Maxton says can save them money.

“It’s very clean, it’s very clear,” Maxton said. “It is something that they can understand.”

The idea of “self-insurance” is similar to traditional insurance: businesses and their employees pay in a certain amount, and pool the risks associated with health costs.

But instead of going to an insurance company who administers payments to health providers, most of the money goes into a big fund, managed by the company or a pool of companies, that covers basic health care costs like doctor visits and shots. Then the companies buy catastrophic insurance for unexpected costs like accidents.

All insurance is a gamble, but it’s a calculated one based on the idea of spreading out risk. With this particular form of gambling, in years when basic costs stay low, the companies and their employees see the savings, rather than having those savings translate to profits for a third-party insurer.

Doug Helser of Polaris, the company helping administer the self-insurance plan, says self-insurance isn’t new: very large companies have been using the model for years.

“Self-funding is a preferred way for large employers to manage risk,” Helser said.

The idea of bringing together multiple companies in one large self-insurance pool is gaining traction as companies with over 50 employees prepare to meet the insurance requirements of the Affordable Care Act (ACA). Although the mandate to provide adequate and affordable insurance for full-time employees has been delayed and won’t go into effect until 2015, business owners are concerned about how it will affect their bottom lines.

That’s where the fine print comes in: self-insurance cuts away several of the taxes and fees associated with the Affordable Care Act for companies purchasing insurance.

An additional benefit to employers, and potential down side for employees, is that self-insurance plans aren’t subject to the same coverage requirements as plans purchased from third-party insurers. For example, under the ACA individual and small group plans must cover hearing and vision for children and give maternity benefits, while employer plans created under a self-insurance model are not subject to any of the ten “Essential Health Benefits” defined by the law.

Finally, and most controversially, self-insured companies in the small group market will be permitted to take gender, age and previous health status into account in establishing group premium rates. The ACA regulates the extent to which insurers can vary costs based on those considerations, in order to spread out costs among healthy and sick people.

Some health advocates and progressive groups have expressed concerns that smaller businesses will choose self-funding if their employees are generally healthy, leaving the fully-funded insurance market to older and less healthy groups and driving up costs for consumers who don't self-insure. However, these loopholes only apply to small businesses (50 employees or less), which are not actually required to purchase insurance under the ACA.