Highmark Health Services, the state’s largest health insurer, soon will begin offering self-insurance plans for small businesses that will allow them to cover the full cost of employees’ health care.
Once a strategy only large companies used, self-insuring can help smaller companies lower costs, experts say.
“I think more and more folks are willing to take that risk because, ultimately, they’re going to pay anyway,” said Norman Kerr, a principal in the health and productivity practice at Buck Consultants, Downtown.
Such plans look more advantageous than ever because they avoid taxes on premiums set to take effect next year under the federal health care law. It’s one of the latest strategies from insurers looking to help employers who are exploring a number of ways to cut their health costs.
“It makes self-funding more attractive,” Kerr said.
For companies with smaller, relatively young and healthy workforces, switching to a self-insured plan could enable them to avoid “rate shock,” said Aaron Ochs, Highmark’s director of client management and new business for small groups.
Highmark will begin giving companies with as few as 25 employees a self-insurance option by the final quarter of the year. “We are hearing a lot of demand from the market,” Ochs said.
Rates for younger and healthier insurance buyers could rise from 30 percent to 100 percent next year, insurance executives have predicted, because insurers no longer will be able to take into account a person’s medical conditions when setting rates. Essentially, the law shifts the higher cost of covering older, sicker people onto younger, healthier people, Ochs said.
“That will raise the rates for low-risk clients,” he said. “One way to avoid paying high increases is to go self-funded.”
Highmark currently offers self-insurance plans to companies with 51 or more employees.
Under such a plan, employees have access to Highmark’s network of medical providers but their employers cover the cost of their medical care and Highmark handles the billing.
Companies with 50 or fewer workers had only the option of fully insured plans, in which a company pays set monthly premiums and the insurer covers the employees’ bills.
Companies that traditionally had self-insured plans were those with at least 500 employees.
“I think that’s incredibly risky,” Kerr said of small companies doing so.
Ochs said he wasn’t aware of any other insurer offering a similar product in the market.
Jonathan Greer, vice president of the Insurance Federation of Pennsylvania, a Harrisburg trade group, said many health insurers in Pennsylvania “share Highmark’s interest” in self-insured plans.
According to a survey from insurer Munich Health North America, 82 percent of health insurance executives have noted growing interest in self-insured plans from companies over the last year.
And a third of those surveyed called the interest significant.
“The smaller employers are looking at opportunities that are available to them from being self insured,” said Christine Whipple, executive director of the Pittsburgh Business Group on Health. “Not only controlling costs, but more important is you can finally get your data and your claims experience.”
Because employers pay their own health-care bills in a self-insured plan, they can figure out why their costs are increasing and take steps to control those costs, such as through targeted wellness programs, Whipple said.
“You can equip yourself with understanding about how your population is using the health care system and then provide some education,” she said.
“I think that’s driving the interest,” she said.
But the risk is higher under a self-insured plan, she said. “The fear is the exposure … one (big) claim can just blow you out of the water.”
To counter the risk, insurers often couple self-insurance with stop-loss insurance, Ochs said. Stop-loss insurance will cover a large claim above a set amount, such as $100,000, he said.
That way, he said, “you’re capped on your risk level.”