Smaller Companies Move to Self-Funding

Many expected that the federal health law would push these employers in this direction. An analysis by the Employee Benefit Research Institute finds evidence that these predictions are coming to fruition.

Instead of buying a health insurance policy to cover their workers, a growing number of small and mid-sized companies are opting to pay their employees’ medical claims directly, a potentially riskier practice financially called self-insuring, a recent study found.

The percentage of small firms with fewer than 100 employees that self-funded their health plans grew 7 percent, to 14.2 percent.Policies sold to companies in the small group market — in most states, defined as companies with fewer than 50 workers — are required to cover 10 so-called essential health benefits and are restricted in how much they can raise premiums based on age or tobacco use. They can also avoid most federal and state taxes on health plan premiums to health insurers.

TFG Partners’ Insights: Most large companies self-fund their health plans rather than buy policies from insurers. Along with self-funding comes the need to comply with ERISA and various DOL requirements. Oversight for what you are paying on behalf of a self-funded healthcare trust is no different than managing an employee pension plan. When a company moves from fully-insured to self-funded the Plan Sponsor also takes fiduciary responsibility previously shouldered by the Insurance Carrier. The  rewards of self-funding  are very apparent, Plan Sponsors are quickly learning that those rewards also come with more oversight, liability, and compliance responsibilities.

Read more about the small/mid-sized market’s shift to self- funding at the link below.
Kaiser Health News