No Matter The Risks, More Employers Are Choosing Self-Funded Plans

The self-funded model of employer-based health insurance (ESI) continues to grow, a new study in Health Affairs has found. The study said that self-funded insurance plans, which means the employer collects premiums and bears responsibility for paying claims, rose from 55% of the market in 2015 to 60% of the market in 2021. Most of the growth came in states that previously had a lower share of self-funded plans, but the model saw growth across most states.

“We found that the nationwide increase in the prevalence of self-funded ESI was widespread, with most states (88%) and counties (78.2%) experiencing an increase in prevalence from 2015 to 2021,” the study said. The study noted that this model carries more risk for employers as sponsors of health plans, and that they may be at a disadvantage when negotiating for lower prices. In addition, the study added, researchers and policymakers lack data when studying these questions, since ERISA laws exempt self-insured plans from many state regulations.

80% of U.S. counties have a majority of enrollees in self-funded plans

The study said that for employer-sponsored insurance plans, a majority of enrollees were in self-funded plans in 2,532 counties in the U.S. in 2021. In addition, 475 counties (15.1% of counties) had more than 75% of ESI enrollees in a self-funded plan, while 85 counties (2.7%) had fewer than 25% of enrollees in a self-funded plan.

Most of the growth seemed to come in counties that had a smaller percentage of enrollees in self-funded plans in 2015. Growth was concentrated in states where the share of ESI enrollment was below 50% in 2015. In those states, the self-funded share rose from 41% in 2015 to 55% in 2021.

The study noted the wide variation among states, even neighboring states. “Every county in Minnesota had a prevalence [of self-funded ESI enrollees] greater than 50% and 58 of 87 counties in the state had a prevalence greater than 75%. Neighboring North Dakota, in contrast, had no counties with greater than 50% enrollment in self-funded plans and had 38 of 53 counties with a prevalence of 25% or lower.”

Large insurers hold nearly two-thirds of enrollees

The report also outlined the insurers who have the most self-funded enrollee coverage. The researchers found that self-funded enrollment represented more than 60% of total ESI enrollment for these insurers in 2021.

The five-largest insurers and TPAs in the market that year were Health Care Service Corporation, Cigna, CVS Health (formerly Aetna), UnitedHealth Group, and Elevance Health (formerly Anthem).

“Elevance Health was the largest insurer or TPA [third-party administrator] in the self-funded market, with more than 17 million enrollees in self-funded plans (19% of the total market),” the report said. “Between 2015 and 2021, CVS Health’s self-funded ESI enrollment grew the fastest among these companies, from 68% to 81% of its total ESI enrollment. Collectively, these five companies enrolled 71% of the self-funded ESI market in 2021.” The report added that other large insurers and TPAs in the market included Highmark and Blue Cross Blue Shield plans in Michigan, Alabama, and New Jersey.

Another finding of the study was that there were highly concentrated markets in many high-population areas. It said that most core-based statistical areas—counties that have at least one large city and high population areas that are economically integrated—also had highly concentrated self-funded insurer and TPA markets.

The report said nearly 60% of these high-population areas had highly concentrated markets for self-funded plans. “A total of 36.2% of self-funded ESI enrollees in core-based statistical areas lived in highly concentrated markets, whereas only 4.2% lived in core-based statistical areas with competitive self-funded markets,” the report said.

Self-funded plans have more risk

The higher risk that employers face in this market is linked to the fact that they have less negotiating power, the study said. “Although self- funded employers’ incentives are aligned with negotiating lower prices for their plans, they generally lack market power to do so effectively,” the report said.

“Insurers bear less risk in this market,” the report said. “There is emerging evidence that insurers may negotiate higher prices in the self-funded market than in the fully insured market, which could stem from their attenuated incentives to negotiate lower prices in this market.”

Mark Katz Meiselbach, a researcher with John Hopkins University and one of the authors of the study noted that the ERISA protections that allow self-funded plans to avoid state regulations also mean there are fewer opportunities to study data from the plans and therefore less oversight from regulators. He added that it would require federal oversight to change this but that such a change seems unlikely in the near future.

For now, he said, the data that is available indicates the current trends will continue. “This is a growing market and likely will continue to grow. Employers should critically assess whether self-funding helps their bottom line,” he said.


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