New Jersey employers reflect national move to self-insurance
December 3, 2012By Andrew Kitchenman, of NJ Spotlight
New Jersey employers outpace the national average when it comes to self-insurance, even though that average has been climbing steadily, according to a recently released report.
The National Employee Benefit Research Institute found that 59.9 percent of New Jersey employees who have employer-provided insurance are enrolled in self-insured plans, compared with 58.5 percent nationally.
The national average has been trending upward since 1998, when it stood at 40.9 percent.
In self-insurance plans, employers pay for employee benefits directly and assume the financial risk, although they contract with private insurers to manage the plans. In traditional fully insured plans, employers pay insurance companies to provide the insurance and the insurer assumes the risk. Self-insured employers face fewer state insurance mandates and regulations.
Incentives to self-insure
Christine Stearns, vice president of health and legal affairs for the New Jersey Business & Industry Association, said self-insurance is more attractive to employers in New Jersey because fully insured plans are more expensive than in other states.
"New Jersey has a more highly regulated marketplace," Stearns said, adding that this drives up costs. "You can provide the same benefits package in the self-insured market vs. the [fully] insured market and save a large amount of money."
Self-insurance is more common among large employers, since it spreads the risk over a larger pool of workers. Of employees at New Jersey companies with more than 1,000 workers, 90.2 percent are in self-insured plans, compared with the national average of 86.3 percent.
An increasingly controversial aspect of self-insured plans is their reliance on "stop-loss" policies, in which an insurer pays for costs for each employee above a set amount, which is $25,000 per year in New Jersey.
The state has raised concerns that insurers are selectively marketing their plans to employers with healthier employees, driving up premiums for the remaining companies.
The increasing number of self-insured employers may also present problems to the financing of the Affordable Care Act. That law includes an $8 billion assessment on fully insured plans, which is not paid by self-insured companies.
Wardell Sanders, president and CEO of the New Jersey Association of Health Plans, expects New Jersey insurers to pay more than $200 million because of the assessment.
"It's going to increase costs and the tax is a big tax," Sanders said.
Sanders also said that New Jersey's efforts to increase regulations on fully insured plans could be self-defeating.
"The irony is that the more that the state tries to regulate the insurance marketplace, in a way, they lose folks altogether as they try to go to the self-funded arrangement," Sanders said.
Sanders added that the more the state increases taxes and assessments on fully insured plans, the more companies will look to self-insure.
"You see the midsized groups and smaller- and smaller-sized groups self-funding," Sanders said. He noted that this would increase costs for those remaining in fully insured plans, including individuals and small employers.
Self-insurance can be cheaper
However, the primary driver of insurance costs is the cost of medical care, which is well above the national average in New Jersey.
"If you're in a state where the cost of health insurance is high above the national average, then the number of people who are covered by self-funded health plans is higher," said Thomas Considine, chief operating officer of Magnacare, a company that serves self-insured employers. "It's not that people in New Jersey are sicker than other places, it's that their treatment and their insurance costs more. "
Considine, the former state commissioner of the Department of Banking and Insurance, noted that some states have higher regulatory hurdles for employers to have self-insured plans, such as New York requiring businesses to have at least 50 employees to self-insure. "Some states have put up arbitrary regulatory blocks against self-funding for small groups," he said
Considine added that other states more tightly regulate stop-loss programs.
"Some states make their plans take a much higher level of risk; it's a protectionist measure to protect traditional commercial health insurance companies," he said.
Considine has been a persistent critic of the Affordable Care Act, but said the law will benefit Magnacare.
"Some of the obligations that are on companies in the fully insured world don't exist" for self-insured companies, he said.
Considine said Magnacare saw a spike in interest from employers after the Supreme Court decision that upheld the Affordable Care Act, and another spike after President Barack Obama's reelection. Considine said self-insured plans feel like traditional insurance, both to employers and to workers.
"It has all of the benefits -- greater economic benefits and greater flexibility in plan design," Considine said. He noted that while the number of large employers who are fully insured is small, the remaining companies are a significant potential market for Magnacare.
"One of the things that's surprised me in my move back to the private sector, is how many medium to large employers still have commercial health insurance," he said. "It seems grossly economically inefficient to me."
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