Why Self-Insured Health Care Plans Will Not Contribute to Adverse Selection Under PPACA
MyHealthGuide Source: Self-Insurance Institute of America, Inc. (SIIA) White Paper, 2/2011, www.siia.org
For the past 30 years, employers of all sizes have historically chosen to self-insure the health benefits plans they offer to their employees. Some observers have raised concerns that the continued expansion of employers who self-insure might impact negatively on state health insurance exchanges to be established under the Patient Protection and Affordable Care Act (PPACA) intended to provide coverage to individuals and small employers.
Critics fear that a majority of smaller employers who will choose to self-insure will likely be those with a healthier workforce. They further conclude that an adverse selection will result in the exchanges causing an ever-increasing risk profile of the remaining coverage pool.
These conclusions are incorrect for the following reasons:
• Risk Levels of Self-Insured Plans Comparable to Fully-Insured Plans -
o Research studies show that there are no major differences in the demographics between insured and self-insured plans and that self-insured plans do not enroll a more favorable selection of health risks than fully-insured plans. (Source: CRS Report to Congress, Congressional Research Service, Library of Congress, March 29, 2006)
o There is no basis for the highly speculative observation that a large number of small employers turn to self-insurance will skim healthier and better risk out of insurance pools.
o This observation is inconsistent with empirical evidence and published research studies.
o Moreover, employers considering the purchase coverage through state health insurance exchanges are not provided claims information to know if they are a healthier than average risk due to insurance companies inability to provide company specific information on their insurance pool.
o Employers of both below average and above average claims experience chose self-funding to take control of their plan and gain the information needed to customize the plan to the employee population.
• PPACA Bars Beneficial Risk Selection Based on Health Status
o While traditional insurers historically have had incentives to select the most favorable risks among individuals in plans they insure, the PPACA prohibits discrimination against plan participants based on health status.
o All plans are prohibited from establishing rules for eligibility and enrollees may not be deemed ineligible for coverage based on such health status related factors as claims experience, medical history, genetic data, evidence of insurability and disability.
• PPACA Contains Additional Reforms That Open Access and Reduce Costs for all Small Groups
o The PPACA contains numerous provisions that not only assure access to coverage for small employer groups, it also contains many reforms that will keep coverage rates in check regardless of a pools risk.
o The tax credits available to small employers to subsidize coverage is only available for employers purchasing coverage in the exchange.
o Additionally, employers now have a guaranteed right of renewability regardless of their change in group risk. That provision coupled with the new premium review process, will also combat against excessive increases in rate increases.
• PPACA Contains a Risk Adjustment Process for all Exchange Plans
o The PPACA contains a risk corridor process and a risk adjustment process that ensures that no particular plan will be greatly affected by significant increases in risk.
o Risk levels of fully-insured plans based on entire pool, not to one’s specific group – Small employers that fully insure are “community rated”-that is, their rates depend not on their own specific claims experience, but on the claims of other companies in their geographic region pool.
Conclusion
Numerous provisions of the PPACA incentivize small employers to remain in the exchange while also providing safeguards against changes in rates for employers who maintain exchange-based coverage. Moreover, research studies show that there are no major differences historically between the health risk profiles of insured and self-insured plans and that both funding methods cover a cross-section of all health risks.
It is of the strong opinion of the members of SIIA, comprised of industry leaders of all aspects of the healthcare delivery system, that there would not be a significant increase in small employers who self-insure, that the ones that do will not necessary have lower than average risk pools, thus, there will be no reason to believe that there will be any adverse selection within any of the State exchanges.
About SIIA
The Self-Insurance Institute of America, Inc. (SIIA) is a dynamic, member-based association dedicated to protecting and promoting the business interests of companies involved in the self-insurance/alternative risk transfer (ART) industry, both domestically and internationally. Visit www.SIIA.org.
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