Self-insured employers pay more for a host of medical procedures than fully insured employers, and just why should be investigated by policymakers, according to a study published today in Health Affairs.
Large providers’ market saturation might be one of the reasons that self-insured employers wind up paying more for such procedures as endoscopies (8% higher in self-insured plans) colonoscopies (7% higher), laboratory tests (5%) and moderate severity emergency department visits (4%).
About two-thirds of the approximately 153 million Americans who obtain coverage through their employer do so in self-insured plans. Such arrangements might put those employers on the hook for healthcare costs and should incentivize them to bargain for lower prices, but that doesn’t seem to be the case, according to researchers with the not-for-profit, nonpartisan think tank Health Care Cost Institute (HCCI). They examined HCCI data from 2021.
“Average per person healthcare spending (annualized to account for differences in enrollment length) was about 10% higher for self-insured plan enrollees ($5,083) than fully insured plan enrollees ($4,606), which may reflect differences in use or price of services,” the study said.
Market-based negotiations and incentives will not likely help self-insured employers get lower prices from providers. The authors use Walmart, the biggest employer in the U.S., as an example. The company employs about 2 million individuals who are spread across the country. This hinders Walmart’s ability to negotiate with any huge provider system in one location.
“Further, employers often rely on third-party administrators to negotiate contracts for self-insured plans, which may hinder employers’ awareness of the prices they are paying, limit their ability to lower spending, and potentially introduce additional costs,” according to the study.
The kind of reforms that HCCI researchers would like to see usually happen at the state level, but that’s not an option for self-insured plans because they’re overseen at the federal level thanks to ERISA.
The Health Affairs study follows research released last week by the Employee Benefit Research Institute (EBRI) showing that large employers have taken a step back from offering self-insured plans, even as small- and medium-sized employers have embraced them more, but the cause for this remains a mystery.
Paul Fronstin, Ph.D., EBRI’s director of health benefits research, told Fierce Healthcare that “it’s not a drastic change. It’s a very small erosion. But something’s going on there, and we’ve got to figure out what it is.”
HCCI researchers in their Health Affairs study said they found interactions among self-insured and fully insured plans’ status and type—whether HMO or PPO, for example—and the resulting prices.
“Specifically, we found that price differences between self-insured and fully insured plans were substantially smaller once controls for plan type were included,” the study said. “At this time, there is limited information on how employers decide whether to self-insure and what plan types and level of benefit generosity to offer their employees that could help explain this finding.”
Several influences may be in play, including deciding to self-insure to avoid complying with mandates in certain states. In addition, they note that benefit value is not systematically different between self-insured and fully insured plans in terms of actuarial value, but things like the financial health of companies and what services employees might be demanding could influence benefit design.
“In future work, careful disentangling of the mechanisms (or combination of mechanisms) driving the price differences documented here would be valuable for employer and policy efforts to improve this important market,” the study said.