Self-insurance in the privatesector has steadily risen over the past two decades, includingamong small businesses.

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The percentage of companies opting for self-funded health insurancerose from 28.5 percent in 1996 to 39 percent in 2015, according toa recent study by the Employee Benefit Research Institute.

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The most recent years of records indicate the trend hasaccelerated, particularly among mid-sized businesses.

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Between 2013 and 2015, the percentage of mid-sized companiesoffering at least one self-insured health planincreased from 25 percent to 30 percent. Among small businesses,the percentage jumped from 13.3 percent to 14.2 percent.

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Interestingly, the percentage of big companies choosingself-insurance slightly declined during the same period, from 83.9percent to 80.4 percent. That decline came after years of steadyincrease; the figure stood at 71.6 percent in 1996.

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Overall, however, the percentage of workers enrolled in aself-insured health plan increased, from 58.2 percent to 60percent.

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Self-insured plans are particularly attractive to largecompanies because they are generally exempt from state health laws.Instead, they are subject only to the federal Employee RetirementIncome Security Act of 1974. For major corporations with employeesin multiple states, self-insurance is a way to reduce stateregulatory headaches.

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While the bureaucratic cost of complying with myriad statemandates has always made self-funding attractive to largecompanies, cutting insurance costs has become an even greaterpriority in recent years, as health costs have grown far fasterthan profits.

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Conventional wisdom says a company with fewer than 50 employeeswould be foolish to self-fund. The smaller the risk pool, thegreater the variability. Even companies with up to 100 workersdon’t have a large enough pool to justify self-funding, MichaelTurpin, a former insurance executive, told BenefitsPRO lastyear.

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“Workforces from 50 to 100 still are not big enough that you canpredict the risk. One major claim can cause problems. It's liketrying to self-insure your car, where you can be accident-free forfour years and then crash your car in the fifth year,” he said.

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However, clearly some mid-size and small companies have decidedthe risk is worth it, perhaps because the conventional route is nolonger affordable.

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EBRI attributed part of the growth in self-insurance to theAffordable Care Act.

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“The rationale has appeared to be that several of the key ACAcomponents — creditable coverage, affordability, essential benefitsand various taxes and fees — would drive up the cost of healthcoverage, thus possibly making self-insurance (which is viewed bymany as generally less expensive than fully-insured alternatives) amore attractive option for many employers,” says thereport.

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