• Maybe self-insurers can lead the way

    There are times I get pessimistic about health care reform. Policymakers pay lip service to the unsustainable spending in the health care sector, but seem unable to do anything about it. Private insurers know that they could make decisions politicians find unpalatable, but they have yet been unable to stem the tide of rising costs. So who can do anything?

    Maybe the self-insurers can lead the way.

    When a company gets large enough, it often makes financial sense for them to insure their workers themselves. With a large enough risk pool, they can actually pile money together and pay for the health care of their employees themselves. Without any of the underwriting and administrative costs of a private insurance company (including profits), they can run as lean and as efficient an insurance program as they like. Sometimes, they outsource some of the administrative work to a private insurance company, but they pay just a percentage for that, and overhead is still relatively low.

    This is intriguing, because in its own way, this is like running a small, fully contained single-payer system. The company is completely invested in keeping costs down. If they manage to do so, all the savings stay in the company. Not only that, but they can tie reductions in health care costs directly into reduced premiums (and increased wages) for their workers.

    I was talking to a group of them yesterday, and I was pleasantly surprised at how nimble and innovative they were. Because they see the improved outcomes and potential savings of prevention and wellness in their own risk pool, they are willing to engage in programs that were, quite frankly, far and above what I’ve seen from traditional private insurance. They were also willing to look at social factors and determinants of health to see if they could bring down spending in ways I can’t imagine the government or standard insurance doing. When I talked to them, I tried to stress how they could push harder for value-based insurance, engaging their employees to see that preferentially paying for more cost-effective therapies could save everyone money, while not sacrificing quality. I think many of them might even try it.

    We keep hearing how states can be perfect laboratories for health care reform. I’ve been skeptical of that, because although there are exceptions, I haven’t seen many successes. But I think that self-insuring companies may be the laboratories we’ve been looking for. If they can make it work, perhaps that could spread to private insurance in general. To be honest, I’m feeling more optimistic about this than anything reform-related in some time.

    UPDATE: Additional thoughts here.

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    • How are self-insurers regulated? In particular, are employers that self-insure allowed to use health as a criterion for hiring and firing?

      • @Steve

        Answer to first question: they are regulated by ERISA.
        Answer to second question: No, though there are exceptions for hiring if the person’s health prevents them from doing the work in the job description.

    • “We keep hearing how states can be perfect laboratories for health care reform. I’ve been skeptical of that, because although there are exceptions, I haven’t seen many successes. But I think that self-insuring companies may be the laboratories we’ve been looking for.”

      As I’m sure Kevin will point out shortly, there is a bit of irony here because self-insured health plans are governed by federal law due to ERISA pre-emption, taking state law and policy almost completely out of the equation.

      Hopefully that also answers Steve’s question (federally regulated, ERISA law). see

      No so sure if/how the ACA changed anything in this realm though.

    • Thanks for the link, pck. The link didn’t work for me unless I dropped the ‘&pli=1’. But it did work when I dropped that, so I’ll be glad to read up.

      Cheers,
      Steve

    • My large employer is trying to do this. This year we are switching to a HDHP w/ HSA, but they are also giving out free health screenings. They are also debuting a new tool that is supposed to allow you to search for a treatment/doctor in your area, and receive a list of doctors with estimated costs of the procedure at each doctor. That is the thing I am most excited about.

    • Self-insuring employers do a lot of things with wellness, incentive programs, rewarding employees with things like HSA/FSA deposits, etc, but in general the actual insurance benefits are not all that different from a fully-insured group. The only difference is that employer is taking on more of the risk of claim costs up to a certain level. The administrative costs are still there, insurers are doing all the same things they’d do for a fully insured group, and charging for it. Self-insuring employers are basically just buying insurance with a really high deductible.

    • @AB: Yes, I think this depiction is more accurate than Aaron’s. There are some minor admin savings over a fully insured product (AER of 10% for self-insured vs 13% for fully insured would be common), but basically all the same administrative functions are served by an insurer acting in an ASO capacity. Over half of the insured lives managed by United, Aetna, Wellpoint and CIGNA are in self-insured plans.