This article appeared on HartfordBusiness.com on December 18, 2017 from Brooks Goodison, President of Diversified Group.
Connecticut health insurers recently announced their 2018 premiums. Employers won’t like them. Rates for some small business plans will rise more than 25 percent. That follows an average increase of 5 percent last year.
Many Connecticut firms are understandably looking for ways to avoid these premium hikes. Some are opting to “self-insure,” or pay their workers’ health claims directly instead of turning to traditional insurers for coverage.
Unfortunately, officials in some states want to effectively ban self-insurance. The U.S. House of Representatives has passed legislation that would counteract those efforts. But it’s stalled in the Senate.
The upper chamber must stall no longer. Scores of Connecticut businesses, nonprofits, and municipalities — not to mention their workers — are counting on Congress to safeguard their self-insured health benefits.
When employers buy health plans from traditional insurers, they typically pay far more than their employees’ care actually costs. Their premiums cover insurers’ overhead, administrative costs and profits.
Insurers also have to protect themselves against a potential worst-case scenario, where multiple employees face huge medical bills. That pushes premiums even higher.
But if an employer has a good year, with low medical costs, his insurer doesn’t send him a rebate. That insurer keeps the excess, perhaps to cover another employer in its risk pool that wasn’t so lucky.
Self-insured organizations, by contrast, pay only for the care their employees consume. According to one study, employers can cut their health expenses by about 10 percent over the first five years following a switch to self-insurance.
Consider the Region 15 public school system, which serves Middlebury and Southbury. In the first year after switching to self-insurance, the district reported savings of $1 million.
Because they pay their employees’ medical claims directly, self-insured organizations have an incentive to keep their workforces healthy. If a worker quits smoking, for instance, the firm’s potential health costs drop significantly.
So self-insured employers often offer top-of-the-line benefits. They may subsidize smoking-cessation programs or sponsor on-site clinics, where workers can get routine check-ups free of charge, in hopes that they’ll catch health problems before they grow serious or costly.
Because they can sometimes provide better benefits at lower cost, self-funded health plans are popular. More than 57 percent of all private-sector employees in Connecticut are enrolled in such plans.
Of course, self-insurance is not without risk. If multiple employees experience accidents or are diagnosed with chronic conditions, the total medical bill could deliver a serious blow to a firm’s finances.
To protect themselves, self-insured firms buy “stop-loss” insurance, which reimburses them for medical expenses beyond a pre-determined cap.
Some states are considering regulating stop-loss policies out of existence by defining them as health insurance. That would require them to cover routine healthcare expenses and pay out more than 80 percent of premium revenue in claims, as federal law requires.
These proposed rules ignore the fact that, unlike traditional health insurance, stop loss doesn’t pay healthcare providers. It reimburses employers.
Further, like most other forms of insurance, employers purchase stop loss hoping that they won’t have to use it. If they don’t make a claim, then they’ve likely held their overall health costs in check. Mandating that stop-loss policies pay out a minimum percentage of premium revenue in claims defeats their purpose.
States are launching this attack on stop loss because they want to force self-insured firms back into the traditional insurance market. They blame these employers for the market’s rising premiums. Because self-funded firms aren’t paying into the traditional insurance pool, only those with high health costs, for whom self-insurance isn’t a good deal, remain. And that means higher premiums.
It’s hardly fair to take away self-insured employers’ existing coverage — and require them to pay more for less generous traditional health insurance — by effectively banning stop loss.
That’s why Congress has to act. The House has sent the Senate legislation that would prevent state officials from redefining stop loss as health insurance — and thus protect the ability of employers to self-insure.
This Self-Insurance Protection Act passed the House by a bipartisan majority of 384 votes. Now, it’s time for the Senate to enshrine SIPA into law and ensure that employers in Connecticut and across the country can continue to self-insure for years to come.
Brooks Goodison is president of Marlborough, Conn.-based Diversified Group, a self-insured employer and health benefits firm.
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