Missing the Point: Department of Labor’s Annual Report on Self-Insurance

Yesterday, in an exercise of bureaucratic box-checking, the Department of Labor (DOL) released its annual report to Congress on Self-Insured Group Health Plans. While the report tells us that approximately 56 million Americans are covered under some form of self-insurance, it tells us nothing about what we really need to know, which is whether small employers have begun shifting to self-insurance to obtain lower premiums and escape the consumer protections that apply to the traditional, fully insured market. Unfortunately, small employers who self-insure are not required to submit any data to DOL regarding their plan or their finances, so the report can give us no picture of what is happening in that market. Only employers covering 100 or more participants or holding assets in trust are required to submit the necessary information (through an annual submission called the “Form 5500”).

Yet it is the small group market that has many policy experts concerned. If DOL collected information about the small group market, its report could be an important tool to assess whether small employers are shifting more towards self-insurance in the wake of the Patient Protection and Affordable Care Act (ACA). Many of the new consumer protections in that law apply only to fully insured individual small group policies and do not apply to self-insured plans. A recent study by the Urban Institute projected that if left unregulated, up to 60 percent of small employers could become self-insured. Because employers who become self-insured are likely to have younger and healthier employees than the rest of the small group market, the study estimates premiums in the traditional market, including exchanges, could rise by as much as 25 percent. Such premium increases could trigger a significant decline in employers offering insurance.

Under the ACA, Congress mandated that DOL submit an annual report regarding self-insured employee benefit plans, including information on plan type, number of participants, benefits offered, funding arrangements, and benefit arrangements. DOL must also report on the finances of employers that sponsor these plans. A self-insured health plan (also known as a self-funded health plan) is a plan for which the plan sponsor (e.g., employer) generally takes on the financial risk of paying claims for covered benefits. These employers often minimize their exposure to financial risk through the purchase of a stop-loss policy. Unfortunately, the Congressional requirement directed DOL to use Form 5500 to produce its annual report, and did not require or encourage DOL to expand its data collection to include self-funded small groups. And, in spite of the importance of knowing what’s going on in this market, there’s no indication DOL has ever tried to obtain this information.

Unless DOL begins collecting data from groups under 100, the agency will not be able to provide useful information to policymakers about what’s happening in the small group market.

For continued updates on the federal and state regulation of health insurance, including trends in small employer self-funding, stay tuned to CHIRblog.

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The opinions expressed here are solely those of the individual blog post authors and do not represent the views of Georgetown University, the Center on Health Insurance Reforms, any organization that the author is affiliated with, or the opinions of any other author who publishes on this blog.