Senate must act to aid businesses that self-insure

Last week, the Senate's drive to repeal and replace the Affordable Care Act appeared to collapse. But the upper chamber's work on health reform is by no means complete. The Senate will soon consider another piece of health-care legislation — one that could actually have a bigger impact on most Pennsylvanians' insurance coverage than the Affordable Care Act.

The Self-Insurance Protection Act (SIPA), recently passed by the House, would, as its name suggests, protect the ability of employers to "self-insure," or cover their employees' health expenses directly instead of purchasing traditional health-insurance policies.

Regulators and legislators in several states have pushed to all but eliminate businesses' right to self-insure. If they succeed, employers that rely on self-insurance to provide their workers with high-quality benefits would have to turn to the traditional fully-insured market. Many would find the policies on offer unaffordable. And that could force them to scale back — or even eliminate — health benefits for their employees.

Congress can stop this from happening by passing SIPA.

More than six in 10 Americans are covered by self-insured plans. The thousands of employers nationwide that self-insure collectively save billions of dollars by covering their employees' health-care expenses directly.

Consider the case of Pittsburgh's municipal government. In 2015, the city was facing a whopping $64 million price tag for coverage through a traditional insurer for its workers the following year. The government switched to self-insurance for 2016 — and was able to cut its health-benefits costs roughly 11 percent, to $57 million.

In June, the Borough of Dunmore, just outside Scranton, revealed that it had saved $400,000 over the last two years by switching to self-insurance.

Self-insured employers can also customize their health benefits to give their workers exactly what they want.

A bustling start-up with a workforce in their 20s and 30s might look to add top maternity-care clinics to its network, or subsidize gym memberships or classes on eating healthfully.

A manufacturer with an older workforce, meanwhile, might provide generic blood-pressure and cholesterol medications free of charge — or invest in an on-site health clinic to provide low- or no-cost care to workers' families.

The benefits of self-funding are self-evident in good years, when employees stay healthy. After all, employers pay only for the care their employees consume.

But what happens if several employees become ill, or suffer major medical emergencies? Self-funded employers are on the hook for those expenses, which can be steep.

They can mitigate this downside risk with "stop-loss" insurance. These policies reimburse employers for any claims expenses that exceed a certain predetermined amount, called an attachment point. Stop-loss effectively allows an employer to know exactly what its maximum potential claims exposure will be in any given year — and to budget accordingly.

For example, many employers with self-funded health plans would be unable to independently cover the costs associated with a premature birth, which can exceed $1 million. A stop-loss policy would protect an employer in the event of such a high-cost claim.

Unfortunately, legislators and regulators in some states are trying to make it impossible for employers to purchase stop-loss insurance — and, thus, to self-insure. Typically, they'll try to redefine stop-loss insurance as "health" insurance in order to subject it to the many regulations that govern health coverage.

Never mind that stop-loss policies don't cover health benefits or pay health-care providers. They simply reimburse employers for expenses they've paid.

Rechristening stop-loss as health insurance renders it unaffordable. Without it, small and medium-size employers can't take on the risk associated with self-insuring. And if they're forced into the conventional insurance market, they may have to pay much more for health benefits. Some might respond to the high price of conventional insurance by dropping coverage altogether — or even laying off workers.

SIPA could prevent those potential outcomes. With the backing of 17 Pennsylvania members of Congress, the House overwhelmingly passed the bill with bipartisan support in April. Let's hope the Senate will follow soon.

Employers are counting on Congress to protect their ability to provide the high-quality, self-funded health plans that they've given their workers for years.

Matthew Kirk is president of the Benecon Group Inc., in Lancaster. mkirk@benecon.com