The attack on self-funding

Posted January 7, 2013 by Sam Fleet at 09:00AM. Comments (7)

Long before the Patient Protection and Affordable Care Act was first implemented in 2010, brokers have helped clients save money and avoid certain restrictions by introducing self-funded health plans as an option for business owners. For years, self-funded health plans have been a smart alternative for these clients to reduce their overall cost of benefits for their employees, and to have close, hands-on management of their plan by working with a third party administrator. 

Successful self-funding by employers has two main components: First, developing a well-managed self-insurance program, and second, applying risk management procedures in the form of stop-loss arrangements. Stop-loss coverage, which reduces the financial risk associated with self-funding, protects the plan sponsor against catastrophic claims beyond a predetermined amount, known as the specific attachment point. Think of the attachment point as similar to the role of a deductible in an individual’s health insurance policy.

So what’s the issue? In early July, the National Association of Insurance Commissioners proposed guideline revisions to the current stop-loss model act, effectively raising the minimum specific attachment point for stop-loss insurance from $20,000 to $60,000, and the aggregate attachment point from $4,000 per plan employee to $15,000 per plan employee. By tripling the minimum attachment point, small employers will be forced to take on more financial risk – and will no longer be able to justify the risks and rewards of a self-funded benefits program.

Although the overall goal of PPACA is to increase the insured population, approving the proposal by the NAIC will have the opposite effect. The changes to self-funding presented in this proposal will require business owners and plan sponsors to decrease or eliminate benefits offerings for employees if they can’t afford the higher attachment point - further decreasing the insured population in the United States.

Instead of providing employers with the ability and access to affordable coverage for their employees in a manner of their choice, there will be little choice but to eliminate a customized benefits plan and employers will have to throw their employees into the insurance exchanges that will be created under PPACA. 

Restricting an employer’s options to design effective benefit plans also removes their flexibility to imbed health and wellness programs into their overall benefits package in an affordable manner.  

While employers are concerned on how offering little to no structured health benefits will affect their ability to attract and retain talented employees, brokers

should also be concerned about this proposed change as it could significantly limit their product offerings and alternatives for clients. In the wake of health care reform, brokers have struggled to diversify their business models and have helped many small clients initiate self-funded plans when they might not have been able to in the past. 

If the attachment points are raised, brokers will then need to be concerned about how the change essentially traps their clients and removes their options for affordable care – effectively forcing them into state exchanges and eliminating the role of the broker. 

Though summer has come to an end, the battle for self-insurance is just heating up.  Most recently, California’s insurance commissioner, Dave Jones, rose to notoriety when he proposed a bill to limit the sale of stop-loss insurance to businesses in his state with less than 50 employees unless they could afford the increased specific attachment point in his state. 

However, on August 28, it was confirmed that the bill was moved to inactive status and will potentially be revisited this year. This is a step in the right direction, but in Michigan, for example, the recently enacted Health Care Claims Assessment Act imposes a 1% tax for state residents on all health care claims incurred in the state. One step forward, two steps back. 

While there is still a long way to go to secure the rights of small businesses to provide self-insured plans to their employees under PPACA, the Self-Insurance Institute of America is ready for battle. They recently brought suit against the state of Michigan, contending that the Health Care Claims Assessment Act was preempted by the Employee Retirement Income Security Act. While the suit was dismissed, SIIA is now gearing up to file an appeal to be reviewed by the Sixth Circuit Court of Appeals. 

With the effect it could have on their business, brokers should learn all they can about the attack on self-funding and stay educated on the latest proceedings by visiting SIIA’s website at

Fleet is president of AmWINS Group Benefits, a wholesale broker of comprehensive group insurance programs and administrative services. He can be reached at



Posted by: Bill F | February 6, 2013 7:09 AM

It is ridiculous to believe that any self insured health plan is cost effective The cost of stop loss, TPA and netwrok fees eat away at any operational savings. The soultion is to use the same vehicle and fund the plan documnet with individual polciies. That ends the network charge and the premium on the individual policies are incredibly efficent. The employer redices his retention an dunfunded liability to a level of a glorified deductible, avoids Cobra problems and saves an average of $4,000 per employee. The empoloyer then rounds out the program by providing additional benefits through the use of a supplemenatry or secondary payor card funded by employee withholding.

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Posted by: Marc R | January 10, 2013 3:18 PM

These guidelines are "proposed" and will most likely be amended if implemented. Since the majority of business owners have less than 50 employees, they should not be in self-funded arrangement, period. Also, the exchanges are not being run by the goverment. They will be run by private carriers and most employers that already offer coveage will not opt their employees for them.

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Posted by: Phil M | January 8, 2013 3:56 PM

All groups who self-fund should have an option in their benefit plan for individuals to travel abroad for surgery to select Joint Commission Accredited hospitals like Bumrungrad, CIMA San Jose, Anadolu Medical Center and Severance Hospital at a reduced or eliminated out-of-pocket expense. That could significantly mitigate the risk of a group that self-funds. But as long as groups continue to be mislead by health plans that wellness programs will solve their problems, they will continue to go in cirles with spiraling healthcare costs.

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Posted by: tom h | January 7, 2013 6:37 PM

I see the NAIC their point of view. However I believe those have fewer than 50 employees should 1. form Alien to self support themselves under that situation. 2. they have the buy power to levege with NAIC on that issue.

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Posted by: John B | January 7, 2013 1:46 PM

Brokers who sell self-funded plans to employers with fewer than 50 employees should have their license revoked. We cannot count the times we have had to extract a small employer from a self-funded plan once the claims turn south. The employer is NEVER told that the stop loss amount they are initially sold is TOTALLY at the discretion of the reinsurer at renewal and as long as there are no claims, everything is fine. However, once the claims start rolling in (and they eventually will do so), the reinsurer raises the stop loss amount for the entire group or lasers an employee or two, thereby making the plan "truly" self-funded as there is no more reinsurance for the unhealthy claimant. This can happen ANY year as experience for the small employer is TOTALLY unpredictable, another minor point most sellers of this product fail to mention to the unknowing small employer.

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Posted by: Don R | January 7, 2013 1:23 PM

Is this really a shock to anyone? The whole objective of PPACA is to move insureds in the private market into the government subsidized programs through exchanges. One roadblock to that agenda is self-funded plans. It was just a matter of time until they came under attack and now it is happening. We are getting fully nationalized health care and have been getting it incrementally for decades. The time is long past due for everyone to wake up and discover we are losing our free market health care system and yet, we still continue to rationalize and try to convince ourselves that this all creates new opportunities and that everything will be fine. Wrong!!! Don Ruzicka - Independent insurance broker with almost 40 years in the business.

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Posted by: David F | January 7, 2013 1:17 PM

I surmise that the NAIC resolution to increase the aggregate was a "knee jerk" reaction to small groups taking on more liability than they could afford. However an increase by 50% to $6,000 would have been good policy. NAIC should consult and actuary next time.

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