Small Employers and Self-Insured Health Benefits

Once primarily the domain of larger employers, rising health care costs and changing market dynamics are influencing more small firms to become increasingly interested in self-insuring health benefits, according to a new qualitative study from the Center for Studying Health System Change. Self-insurance, or self-funding, is an arrangement in which an employer—rather than an insurance carrier—assumes the financial risk for the cost of covered employees’ and dependents’ medical care.

Funded by the Robert Wood Johnson Foundation, the study authors found that recent increases in insurance premiums—along with more competitive markets for third-party administrators and stop-loss insurance to cover medical costs exceeding a predetermined amount—are making self-insurance attractive to more employers, including those with 100 or fewer employees.

In 2011, about 60 percent of U.S. workers covered by employer-sponsored health insurance were employed in firms that self-insure. The brief concludes that while the Affordable Care Act may spur more small firms to consider this option, if more such firms opt to self-insure, adverse selection could potentially disrupt state health insurance exchanges.