Today, over 60 percent of all employers in the U.S. self-insure their employee medical benefits. And the self-insurance rate is poised to grow even more. This may come as a surprise to those used to the days, not long ago, when the majority of employers purchased a fully insured product from an insurance company, a Blue Cross Blue Shield organization, or a Health Maintenance Organization (HMO).
A growing market
Health plans and providers increasingly view self-funding as a viable market opportunity. Many health providers that initially chose to self-fund their own benefit plan, for example, now desire to introduce a self-funded product in their market. It makes good business sense. Self-funding offers an opportunity to drive more patients to provider-owned facilities and capitalize on synergies with employer clients and distribution partners.
With the increased popularity of self-funding, many health plans have become active in the employer stop loss (ESL) business – and many more are seeking to enter. ESL insurance allows employers to self-fund while protecting against catastrophic or unpredictable losses, as the insurer provides coverage for losses that exceed defined limits. Exposure from specialty drugs and continued growth in $1 million+ claims are among the high-cost growth drivers for ESL insurance.
Many regionally based health carriers and several large nationally recognized group life and disability carriers have entered or are looking to enter the ESL market. Since the passage of the Affordable Care Act (ACA) in 2010, the growth in the ESL market has accelerated from a compound annual growth rate (CAGR) of 7 percent from 2006-2011 to a 12% CAGR from 2011-2015, with annual ESL premiums now totaling $17 billion. At this point, there is no indication that legislation to replace/repeal the ACA will have a significant impact on this sustained growth.
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