Self-funded health plans can be less expensive for employers

Because self-funded health care plans are governed by the federal Employee Retirement Income Security Act, they are exempt from state premium taxes and state laws that mandate minimum coverage requirements.

In many cases, such exemptions make self-funding a less expensive option for employers than traditional commercial health insurance, benefit experts say.

Currently, 82.1% of employers with 500 or more employees self-insure their health benefits, according to a recent report to Congress by the U.S. Department of Health and Human Services. By contrast, just 25.7% of firms with 100 to 499 employees do so, and only 13.5% of those with fewer than 100 employees self-fund.

However, that same HHS report noted that if attractively priced stop-loss coverage were available to small and midsize employers at lower attachment points, more would choose to self-insure.

A recent survey by Wilton, Conn.-based D.W. Van Dyke & Co. showing a more than 10% jump in the sales of stop-loss coverage this year over last year indicates that already may be happening. It was the largest jump in medical stop-loss purchases since DWVD & Co. began tracking them in 2002.

While larger employers may have the financial wherewithal to cover large health care claims, most small and midsize employers purchase stop-loss coverage to reimburse them for claims above a specified dollar level. This is an insurance contract between the insurer and the employer and is not deemed to be a health insurance policy covering individual plan members.

The Kaiser Family Foundation estimates that 58% of workers in self-funded health care plans are in plans covered by stop-loss insurance.