Since the passage of the Affordable Care Act in 2010, employershave become increasingly aware of the potential financial benefitsthat come with adopting a self-funded health plan.

Related: Self-insurance rises among small andmedium-size employers

A primary benefit of self-funding is that under the EmployeeRetirement Income Security Act, self-funded plans are shielded fromthe reach of state insurance regulations. States are unable toregulate these self-funded ERISA plans as they would fully-insuredhealth plans.

Related: 10 most catastrophic claims forself-funded employers

As a result, employers are empowered to use innovative planlanguage to craft an affordable, flexible plan. Additionally,employers benefit from uniform coverage and cost continuity becausea single plan can cover many employees in multiple states.

Despite the real advantages of self-funding, many employersstill seek out tools they can use to transfer actual or perceivedrisk away from their plans. That's where incentives anddisincentives come into play -- but there are potential pitfalls tobe aware of.

Incentives and disincentives

Federal law expressly prohibits discrimination against planparticipants based on sex, disability, health factors, and othercriteria. For example, offering incentives to enroll in Medicare isnot permitted according to the Medicare Secondary Payer Act.

This is part of the basic structure of the Act and, as might beexpected, the regulatory bodies charged with enforcement take avery broad view of what actions might constitute such anincentive.

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While it may be intuitive for a plan to suggest that itsparticipants can, for a monetary incentive, terminate coverageunder the plan and instead become covered under Medicare, this runsafoul of the Act.

According to the Department of Labor, an employer can't give acash reimbursement for the purchase of an individual market policy.If it does so, the payment arrangement is part of a “plan, fund, orother arrangement established or maintained for the purpose ofproviding medical care to employees, without regard to whether theemployer treats the money as pre-tax or post-tax to theemployee.”

Therefore, the arrangement is a group health plan under ERISA.Under the ACA, such arrangements can't be integrated withindividual market policies. To be compliant with the ACA, a premiumreimbursement plan (or HRA) must be integrated with a compliantgroup health plan.

Offering a choice between cash and health benefits is generallyallowable, but the compensation can't be designated specificallyfor the payment of individual premiums. Any attempt to conditionthese payments on proof the employee enrolled in exchange coveragewould therefore be noncompliant with the ACA.

An offer of cash in lieu of benefits would also be deemeddiscriminatory if made only to high risk or ill employees. Such anoffer must be extended to all employees.

It's also worth noting that if the employer offers affordablecoverage which meets the minimum value requirements, employeeswould not be eligible for subsidies on the exchange -- and exchangecoverage would therefore likely be less affordable or attractive toan employee than the employer’s group plan.

Modifying copays and deductibles is another way an employer canincentivize employee behavior.

The Department of Labor indicates that a plan may waive or lowera copayment for the cost of certain services in order to encourageparticipants to seek a certain type of care -- such as well-babyvisits or regular physicals. This can benefit the group by ensuringemployees and their families are healthy.

Similar to copayments, plans may waive or lower deductibles forcertain services at the employer's discretion. It should be notedthat a HSA-qualified high-deductible health plan can't retain itsHSA qualification if the plan pays first-dollar for services otherthan preventive care -- so HDHPs can't utilize deductible waiversas an incentive in most cases.

Just as providing incentives to employees may lower the cost ofself-funding, so can disincentives.

The simplest type of disincentive is raising deductibles andeven lowering the percentage of covered services.

By doing this, the plan sends the message to participants thatremaining enrolled in the plan may not be the best financialchoice. At the very least, a raise in price may cause participantsto explore other options.

However, employers should note that raising deductibles couldadversely impact the plan in the form of driving even healthy livesto the exchanges. In other words, recklessly including highdeductibles in a plan could drive away the very lives the planneeds to thrive, as well as those it wanted to disincentivize inthe first place.

An alternative option to consider would be for the plan to haveno deductible up to a certain point, at which point the deductiblebecomes applicable -- and the deductible is the highest permittedby applicable law. By doing so, the plan can ensure that thehealthy lives it wants to keep on the plan are satisfied with thecare offered because they won't have a deductible for theircare.

'Skinny' plans

A “skinny plan” is a type of plan that has been developed in thewake of the ACA. As the ACA imposes many requirements onself-funded plans, the skinny plan attempts to comply perfectlywith the requirements of the ACA, and cover the bare minimumallowed by law.

A skinny plan is a sort of bare-bones model -- it's generallyconsidered not suitable to employees who have underlyingconditions, who may need specialty care. The ACA doesn't requirethat the plan cover specialty care, so skinny plans don't cover alot of services that many employees need on a regular basis.

The ACA requires that all large employers offer health care totheir employees -- but there's no requirement that the employeesenroll on the employer’s plan.

If the employer offers a skinny plan, and many employees electto not enroll due to its lack of coverage of services they mayneed, then the employer has still complied with the ACA.

One potential pitfall of offering a skinny plan may be relevantto employers with smaller employee bases; if not enough employeesenroll, maintaining a self-funded plan may prove unfeasible. Forthis reason, offering a skinny plan is likely only a good optionfor larger employers.

Pursuing health care cost containment strategies is increasinglyimportant for employers who wish to offer affordable healthinsurance to employees, especially after the passage of theACA.

Self-funded plans can benefit from creative plan design -- andmanaging risk with incentives and disincentives can provide evengreater savings.

Provided that employers can stay compliant withanti-discrimination regulations, self-funded health plans willcontinue to be uniquely flexible and offer real savings to bothemployers and employees alike.