“As one who believes ERISA self-funded plans are the optimal tool for employers to economically customize health benefits for employees and dependents, I am concerned with the growing effort to weaken ERISA. Below are briefs from recent articles and initiatives that supporters of self-funding should be aware. The focus is largely the result of the growth in level-funded health plans” – Ernie Clevenger
Growing Focus on Level Funded Plans (and ERISA) by State Regulators (NAIC and NCOIL) and Congress
By Ernie Clevenger
Self-funded Health Plans Dominates
Among BUCAs, there are 4 enrollees in self-funded plans for every 1 enrollee in fully-insured plans1
Using National Association of Insurance Commissioners (NAIC) data, BUCA (Blues United Cigna Aetna) insurers are deeply entrenched in the provision of administrative services only (ASO) contracts for self-insured employers.
In 2022, insurers administered to nearly four times as many ASO enrollees as they covered in fully insured plans, with fifty-six insurer-based ASO contractors providing services for 118 million enrollees.
The largest ASO contractors—CVS Group, Cigna Health Group, and Elevance Health Inc. Group—collectively served more than seventy million ASO enrollees and demonstrated less variable and stronger profitability relative to other ASO contractors.
40% of employers with 3 to 99 employees are using level-funded plans2
State insurance commissioners see “level-funded” plans – hybrid self-insured plans – pulling covered lives away from fully-insured. (Self-funded ERISA plans are exempt from state regulation (state insurance commissions) where fully-insured plans are subject to state regulation.)
In 2018, fewer than 10% of small firms had level-funded health plans, according to Kelly Edmiston, policy research manager at the National Association of Insurance Commissioners’ (NCOIL) Center for Insurance Policy and Research.
Edmiston talked about level-funded plans during a discussion of trends in the small group market, according to a copy of his slidedeck included in an NAIC meeting materials packet
He gave the briefing at a session organized by that NAIC’s Regulatory Framework Task Force at the NAIC’s fall national meeting. The task force helps state regulators develop model acts and model regulations for state health care initiatives. It also helps regulators consider issues that affect state health insurance regulation.
In addition to discussing level-funded plans, Edmiston discussed the small-group plans available through the Affordable Care Act public exchanges programs and programs based on health reimbursement arrangements that let employers give workers cash the workers can use to buy their own individual coverage.
States to Regulate Single-state Self-insured health plans, not ERISA3
Many relatively small employers are using stop-loss insurance, or insurance for health plans, with relatively low “attachment point,” or stop-loss deductibles to provide health benefits, and state representatives, assembly members and senators are frustrated.
At the NCOIL session on ERISA, members considered a draft resolution that calls for Congress to change ERISA to let state policymakers “enact more meaningful state healthcare reforms.”
The drafters of the resolution — New York state Assemblymember Kevin Cahill, a Democrat, and Utah state Rep. Jim Dunnigan, a Republican — contend in the resolution draft that “ERISA has grown far beyond its original intent of establishing uniform federal standards to protect private employee pension plans from fraud and mismanagement, and has transformed into a critical barrier for states seeking to enact meaningful healthcare reforms.”
The drafters want Congress to give state legislatures and regulators some ability to regulate health coverage provisions at self-insured health plans sponsored by single-state employers.
In June, for example, the ERISA Industry Committee asked Texas state legislators to respect ERISA preemption when they try to regulate pharmacy benefit managers.
“While we share the goal of reducing health care costs, policies that stand to erode ERISA preemption and national uniformity threaten to do more harm than good,” Dillon Clair, ERIC’s director state advocacy, wrote in a comment letter on two Texas state legislature bills.
Sources
- Jean M. Abraham, Amanda C. Cook, and E. Tice Sirmans, Prevalence And Profits Of Insurers In The Administrative Services Only Market Serving Self-Insured Employers, 2010–22 Health Affairs
- Allison Bell, Small employers are fleeing from fully insured market, analyst tells regulators, Benefits Pro (full text), 12/2/2024
- Allison Bell, States should regulate single-state self-insured health plans, not ERISA, say lawmakers, Benefits Pro (full text), 12/9/2024
What is Level Funding?
Level funding is a hybrid financial strategy in health benefit planning12345. It is a type of self-funded plan in which the employer contributes a steady monthly payment to cover costs for administration, claims payments, and stop-loss insurance2. With level funding, employers pay a set amount each month to a carrier, which typically includes the cost of administrative and other fees and the maximum amount of expected claims based on underwriting projections, as well as embedded stop-loss insurance345.
