Employer Self-Insurance Decisions and the Implications of the Patient Protection and Affordable Care Act as Modified by the Health Care and Education Reconciliation Act of 2010 (ACA)

by Christine Eibner, Federico Girosi, Amalia Miller, Amado Cordova, Elizabeth A. McGlynn, Nicholas M. Pace, Carter C. Price, Raffaele Vardavas, Carole Roan Gresenz

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The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (ACA) changes the regulatory environment within which health insurance policies on the small-group market are bought and sold. New regulations include rate bands that limit premium price variation, risk-adjustment policies that will transfer funds from low-actuarial-risk to high-actuarial-risk plans, and requirements that plans include "essential health benefits." While the new regulations will be applied to all non-grandfathered fully insured policies purchased by businesses with 100 or fewer workers, self-insured plans are exempt from these regulations. As a result, some firms may have a stronger incentive to offer self-insured plans after the ACA takes full effect. In this report we identify factors that influence employers' decisions to self-insure and estimate how the ACA will influence self-insurance rates. We also consider the implications of higher self-insurance rates for adverse selection in the non-self-insured small-group market and whether enrollees in self-insured plans receive different benefits than enrollees in fully-insured plans. Results are based on data analysis, literature review, findings from discussions with stakeholders, and microsimulation analysis using the COMPARE model. Overall, we find little evidence that self-insured plans differ systematically from fully insured plans in terms of benefit generosity, price, or claims denial rates. Stakeholders expressed significant concern about adverse selection in the health insurance exchanges due to regulatory exemptions for self-insured plans. However, our microsimulation analysis predicts a sizable increase in self-insurance only if comprehensive stop-loss policies become widely available after the ACA takes full effect and the expected cost of self-insuring with stop-loss is comparable to the cost of being fully insured in a market without rating regulations.

Table of Contents

  • Chapter One

    Introduction and Background

  • Chapter Two

    Factors Influencing Employers' Decisions to Self-Insure

  • Chapter Three

    Prevalence of Self-Insurance and Characteristics of Self-Insured Firms

  • Chapter Four

    Financial Solvency of Self-Insured Firms

  • Chapter Five

    Health Benefits and Costs in Self-Insured Plans

  • Chapter Six

    Claims Denials

  • Chapter Seven

    Consumer Recourse Options

  • Chapter Eight

    The Impact of the ACA on Employer Decisions to Self-Insure

  • Chapter Nine

    Discussion and Future Implications

  • Appendix A

    Analysis of Kaiser/HRET Data: Methodology

  • Appendix B

    Qualitative Methods

  • Appendix C

    Supplemental Tables

  • Appendix D

    Model Methodology

The research described in this report was sponsored by the U.S. Department of Labor and was conducted in RAND Health, a division of the RAND Corporation.

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