U.S. House Committee on Small Business Holds Hearing on Self-Insurance, Health Benefits

House health care oversight continues.

The U.S. House Committee on Small Business Subcommittee on Health and Technology held a hearing titled, “Self-Insurance and Heath Benefits: An Affordable Option for Small Business?” The purpose of the hearing was to examine the trend of small businesses choosing to self-insure with regard to health care coverage for their employees rather than purchase health insurance from insurers. Witnesses included Michael W. Ferguson, president and chief executive officer of the Self-Insurance Institute of America in Simpsonville, S.C.; Robin Frick, Combined Benefits Administrators Inc. in Madisonville, La.; Thomas Faria, president of Sheffield Pharmaceuticals in New London, Conn.; and Dr. Linda Blumberg, senior fellow with the Urban Institute in Washington, D.C.

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Rep. Chris Collins (R-N.Y.), subcommittee chairman, offered the following remarks regarding the Patient Protection and Affordable Care Act’s (PPACA) rising cost of insurance for small businesses: “The list of issues with this implementation is staggering … of large concern to those of us who serve on this committee, small businesses facing significant increases in the cost of their health plans, upward of 55 percent in one case.”

The chairman went on to discuss the possibility that small businesses may consider switching to self-insurance despite its rareness in the past:

“Traditionally, small businesses have not utilized the option to self-insure. According to the Kaiser Foundation, only about 16 percent of employees at small firms are covered by a self-insured policy as opposed to 83 percent of employees at large firms. But with the onslaught of regulations, cost increases and uncertainty surrounding fully insured plans as a result of the president’s health care law, more small businesses may choose to explore self-insurance as a manner of providing competitive benefits packages for their employees.”

Ferguson, of the Self-Insurance Institute of America, discussed two different self-insurance options:

“The first option is to purchase a traditional group health insurance policy from a licensed health insurance carrier. Under this arrangement, the organization pays the insurance carrier a fixed premium, and the carrier provides health care coverage to the group in accordance with specified policy terms. By choosing the traditional insurance option, the organization transfers the health care-related financial and legal risk to the carrier.

“The other option is to retain the financial and legal risk through the use of a self-insured group health plan. This is also known as self-funding. Under this arrangement the organization pays eligible health care claims as they are incurred, either directly like other business expenses or through a separate trust.

“Self-insured employers typi­cally outsource claims administration functions and retain stop-loss insurance as a financial backstop for catastrophic claims.”

Faria, of Sheffield Pharma­ceuticals, discussed some of the positive effects of choosing self-insurance if feasible for a small business:

“There are many benefits that self-insurance can have for businesses that have the right conditions and mindsets to utilize it. First … self-insurance can have the ability to save individual business plans considerable costs. This, however, comes at the expense of having health insurance costs fixed for a period of time. Secondly, it allows access to cost data that can show not only where a company spends its health care dollars, but also allows for comparison against national norms. When a company knows these costs it becomes more responsible for them. Thirdly, this cost transparency can allow a business to develop its individual plan to educate and incentivize its consumer activities to most efficiently use health services, reducing both the business’s, consumers’ and overall health system’s costs. Finally, self-insurance encourages companies to invest now in education, incentives for healthy living and preventive care to help promote long-term healthy behavior changes in its workforce. This leads to better lives for their workers and hopefully can help stem off major and expensive health issues in the future.”

To view full testimony from this hearing, visit the Automotive Service Association’s legislative website at www.TakingThe Hill.com.

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