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Tuesday, June 29, 2010

Self-Insured Health Insurance Coverage

Bernadette Fernandez
Analyst in Health Care Financing

Private health insurance can be provided to groups of people that are drawn together by an employer or other organization. Such groups are generally formed for some purpose other than obtaining insurance, like employment. When insurance is provided to a group, it is referred to as "group coverage" or "group insurance." A common distinction made between private health coverage offered to groups is how such coverage is funded. That is, the plan sponsor may either purchase group health insurance from a state-licensed insurance carrier, or fund the health benefits directly. The former refers to fully insured plans; the latter, self-insured plans. 

Self-insurance refers to coverage that is provided by the organization seeking coverage for its members. Such organizations set aside funds and pay for health benefits directly. (Enrollees may still be charged a premium.) Under self-insurance, the organization itself bears the risk for covering medical expenses. Because self-insured plans are not purchased from an insurance carrier licensed by the state, they are exempt from state requirements and subject only to federal regulation. With fully insured plans, the insurance carrier charges the plan sponsor a fee for providing coverage for the benefits specified in the insurance contract. The fee typically is in the form of a monthly premium. (In turn, the sponsor may decide that each person or family who wishes to enroll must pay part of the premium cost.) Under the fully insured scenario, the private insurer bears the insurance risk; that is, the insurer is responsible for covering the applicable costs associated with covered benefits. Insurance purchased from a state-licensed insurer is subject to both federal and state regulation. 

A majority of individuals with private health insurance coverage are enrolled in self-insured plans. In 2008, 55% of private-sector enrollees were in such plans. This proportion differs when comparing small firms and large firms. In 2008, of the private-sector workers who were employed at small firms with health coverage, 12% were enrolled in self-insured health plans. In contrast, of private-sector workers employed at large firms, 65% were enrolled in self-insured plans. Consistent with these findings is the share of private-sector firms that offer at least one self-insured plan. In 2008, while 34% of all private-sector firms that offered insurance had at least one self-insured plan, only 13% of small firms had such a plan, compared with 63% of large firms. 

To assist individuals, families, and employers in obtaining health coverage, the 111th Congress passed major health reform legislation. The Patient Protection and Affordable Care Act (P.L. 111- 148, PPACA) was signed into law on March 23, 2010, and later amended by the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152). PPACA imposes new requirements on individuals, employers, and health plans; restructures the private health insurance market; sets minimum standards for health coverage; and provides financial assistance to certain individuals and, in some cases, small employers. Among the provisions in PPACA are ones that would have a major impact on private health insurance coverage, including self-insured plans.

Date of Report: June 25, 2010
Number of Pages: 11
Order Number: R41069
Price: $29.95

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