The Little Sisters, self-insured plans, and private exchanges

The Little Sisters, self-insured plans, and private exchanges March 24, 2016

Putting my actuary hat on this morning.

First, to put the Little Sisters case into a health insurance context:

One thing that people are saying about the situation is this:  “the Sisters keep calling it their healthcare plan, but it’s not – it’s the employees’ plan.”  So it’s important to understand that the Sisters do not simply purchase health insurance that they “give” to their employees.  The Sisters offer what’s called a self-insured plan.   This means that, although it appears to the employees to be health insurance, the Little Sisters, as a company, simply pay their employees’ medical costs (less copays, etc.) directly, and the “insurance company” simply functions as an administrator, charging a fee as a percent of claims.

Why do they do this?  It’s common in the employee benefits world.  It’s cheaper, because the employer isn’t paying the “cost of insurance” that the insurance company would otherwise charge — that is, their charge for taking on the risk of high claims — nor are they paying the cost of the insurance company’s profit margin.  And it enables what’s called “ERISA pre-emeption” — which means that a company can provide a consistent benefit program across state lines (yes, those “lines” that Trump cluelessly talked about), and deal with federal regulation, rather than 50 individual state regulations.  According to wikipedia, 81% of workers with employer-provided healthcare are in a fully or partially self-insured (or “self-funded”) plan.

Second, the latest innovation, if you will, in employer-provided health care, and in the industry of advising employers on their plans (e.g., what the healthcare side of benefits consulting firms are up to), is away from self-funded benefits to what’s being called a “private exchange.”  Modeled on the public, subsidized exchanges, these are meant to provide employees the opportunity to select from a greater variety of healthcare plans than is usually the case, with the employer providing a fixed (per family type – single, couple, family) contribution, and the employee paying the rest.  These “exchanges” use the same “metallic” terminology as the public exchanges, and there is a greater degree of separation between the employer and the healthcare plan offerings, and the employee’s ultimate plan selection — this is all managed by the consulting firm or other exchange provider.  Here’s an old-ish article in Forbes on the topic, and a more detailed look from a business perspective.

Now, I’m not informed on all the details here.  Does any particular participating employer select which plans are made available to their employees, or does their joining a “private exchange” operated by any given provider automatically provide access to all the plans in the exchange?  I think it’s the latter.  Another thing that’s not entirely clear to me is the extent to which the claims experience of each individual employer is considered in setting the rates for their employee group, within the exchange, or whether the claims experience of all the employers taken together, forms the basis for rates set by the insurance company.

Which leads me to wonder, given that the Sisters have proposed that the government use the exchange mechanism to provide contraceptive coverage, whether the exchange model, in the private sector — in which the Sisters would provide the equivalent of a voucher which their employees use to select insurance — would separate them from the health insurance mechanism sufficiently for them to feel that they had been adequately disconnected from providing contraception.

And, mind you, I’m not talking about what they should or should not think, just speculating about, following their own moral reasoning, what they would think.

In which case, the “burden” becomes forcing the Sisters and similar employers to forgo the advantages of being a self-funded healthcare provider.

 

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