Benefits and Compensation

Congress Sees Self-funded Health Plans’ Financial Strength

Companies that self-fund health benefits are larger than companies that fully insure health benefits and their solvency is just as good as companies that fully insure, a government report required by the health reform law indicates.

The reform law requires reports on the prevalence, solvency and quality of self-funded plans, with the stated goal of seeing whether such plans are solvent and as dependable as fully insured plans. The third such report since 2011, Annual Report to Congress on Self-funded Health Plans, was issued April 1 by the U.S. Department of Labor and derived its data from 2010 Forms 5500.

The findings seem to indicate that self-funding remains financially viable and the companies that do self-fund tend to be larger and richer than companies that do not.

Data on the relative financial health of companies that self-fund versus fully insure were mixed. On the one hand, fully insured firms had more cash flow relative to total debt than self-insured and mixed-insured firms. On the other hand, fully insured firms had lower operating income relative to debt.

Details

About 75 percent of self-funded plans provided ancillary benefits in addition to health benefits. Just 4,753 of 19,772 self-funded plans provided health benefits only; the other 15,019 provided health and other benefits such as dental, vision and non-health coverage. Companies with totally self-funded plans filing Forms 5500 and for which complete financial data was available had median employee counts at around 3,000.

Mixed insured plans were partly self-insured but assumed to have at least one contract of insurance, often to cover ancillary benefits, such as dental, vision and non-health. Just 270 mixed insured plans offered only health benefits; the other 3,752 offered a range. Companies with mixed insurance plans filing Forms 5500 and for which the most financial data was available had median employee counts at around 11,000.

In 2010, 48,544 private sector employer-sponsored group health plans filed a Form 5500. Of those, 19,772 were totally self-insured, 4,022 were mixed-insured and 24,750 were fully insured.

Earlier Reports Understated Self-funding

Previous reports understated the number of self-insured plans, DOL said. As a result, the most recent count should not be compared to previous reports to observe an upward trend, DOL said.

Assets

About 30 million group health plan participants (out of a total of 68 million) were covered under self-insured plans.

Self-funded plans keeping assets in trust recorded assets of $57.8 billion. Mixed-insured plans keeping assets in trust recorded assets of $136 billion. The assets they held were, in order: cash, direct filing entities, mutual funds, debt instruments and stock.

Trusts owned by self-funded and mixed-insured plans posted investment income gains of more than $22 billion, of which approximately $4 billion was gained by self-insured plans and $18 billion by mixed-insured plans.

Where Does the Money Go?

The survey had more details from plans that had trust funds, but not when plans paid out of general assets. DOL had no data on plan assets, contributions and paid benefits from plans that paid out of general assets. Of totally self-insured plans, 5,400 paid benefits out of a trust and 14,400 paid out of general assets.

The 5,400 self-insured plans keeping assets in trust had annual contributions of $51.8 billion and benefits payouts of $49.1 billion. They also paid nearly $3 billion in administrative expenses, which breaks down to $500 million in professional fees, more than $1 billion in administrator fees, $100 million of investment advisory and management fees, and more than $1 billion in other administrative expenses.

The 1,700 mixed-insured plans keeping assets in trust had annual contributions of $87 billion and paid benefits of $88 billion. They paid approximately $4 billion in administrative expenses, comprising $400 million in professional fees; $3 billion in administrator fees, $200 million in investment advisory and management fees, and $1 billion of other administrative expenses.

For more information on health reform and self-funding, see Section 150 of the Guide to Self-Insuring Health Benefits.

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