Small employers are facing formidable hurdles as they consider self-funding health insurance plans. But self-funding still holds appeal.
Increasing regulation of self-funded health plans is complicating the efforts of some employers as they seek an alternative to plans offered under the Affordable Care Act, one analyst says.
Most of the stiff regulation involves stop-loss, the reinsurance that protects employers from catastrophic losses.
The regulatory hurdles still are not enough to deter many employers who see self-funding as the better option, says Tim Callender, vice president of sales and marketing for The Phia Group, a consulting company that offers healthcare cost containment services.
Self-funded plans are regulated by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry, but states are increasing their regulation also, he says.
"There is a lot that goes on at the state level to regulate stop-loss re-insurance, which is super important to small employers because even if they are cash-rich they won’t have the same cash as a large employer," Callender says.
"We're seeing a lot of activity at the state level to regulate who can purchase these stop-loss policies and how, and that can make it more difficult for the small to midsize employers–up to about 250 employees–to self-insure."
At the federal level, the dysfunction in Congress regarding healthcare actually is encouraging self-funding, Callender says.
"Under the Affordable Care Act, the state exchanges are failing and the trend on the carrier models is to more expensive products and that is scaring employers away from the traditional health insurance model," he says.
Gregory A. Freeman is a contributing writer for HealthLeaders.