Move to Self-Insuring Will Lead to Lower Profits for Carriers, Industry Experts Predict in AIS Newsletter

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Industry experts, in the Feb. 20, 2014 issue of Atlantic Information Services’s Inside Health Insurance Exchanges, predict a move to self-insuring if states let large employers on exchanges in 2017, leading to lower profits for carriers.

Beginning in 2017, states have the option of allowing large employers (i.e., more than 100 employees) to purchase a fully insured health plan through public insurance exchanges, and it is likely that the rules that apply to large-group plans sold on exchanges also will be required of large-group plans sold outside of the exchanges. For carriers, according to the Feb. 20 issue of Atlantic Information Services, Inc.'s (AIS) Inside Health Insurance Exchanges, that could mean even more employers will seek to avoid these new requirements by self-insuring. This will likely lead to increased costs for carriers, and could mean lower profits for insurers as employers transition from fully insured products to less profitable administrative services only (ASO) accounts. It also could mean a sicker risk pool among employers that decide not to self-insure.

In fact, insurers say self-insured employers generate lower earnings. During a Feb. 6 conference call to discuss fourth-quarter 2013 earnings, Aetna Inc. President and CEO Mark Bertolini noted that commercial risk members offered four-times to five-times greater contribution to earnings than ASO members on a dollar basis.

Currently, the federal government has granted exemptions to large-group employers from some provisions of the Affordable Care Act, such as the premium rating rules, essential health benefits (EHBs), actuarial value requirements and the single risk pool, as the law’s drafters were focused on reforming the small-group and individual markets. But the exemptions for large employers go away in 2017 if states opt to expand exchanges to include large employers.

Surprisingly few employers have paid attention to this provision because they incorrectly believe that they will be affected only if they buy coverage through the exchange, Christopher Condeluci, of Counsel at the law firm Venable LLP, says. “But the statute is crystal clear on this....If a state makes this type of election, then the adjusted community rating rules will apply to large group inside and outside of the exchange.…no more experience rating,” he explains. “The reason we have the same rules inside and outside the exchange is to make sure the exchange doesn’t get adversely selected against. And state regulators will have no choice but to impose the EHB actuarial value and the single risk pool to plans sold outside of the exchange as well as inside.”

Visit to read the article in its entirety, which includes more analysis from Rich Stover, a principal with Buck Consultants, and Jay Savan, an employee benefits consultant with Mercer.

About Inside Health Insurance Exchanges
Inside Health Insurance Exchanges provides hard-hitting news and strategies on the details of federal, state and private health insurance exchanges, for business planners with health plans, hospitals and health systems, medical groups, ancillary providers, suppliers, pharma companies and state health policy makers. The biweekly newsletter answers questions about this cornerstone of the health reform law — who will participate, what product designs will look like, the effect on enrollment and more. Subscribers receive reliable intelligence on how to make the most of the enormous transformation in health insurance that is about to unfold and how to succeed in the insurance marketplace of tomorrow. Visit for more information.

About AIS
Atlantic Information Services, Inc. (AIS) is a publishing and information company that has been serving the health care industry for more than 25 years. It develops highly targeted news, data and strategic information for managers in hospitals, health plans, medical group practices, pharmaceutical companies and other health care organizations. AIS products include print and electronic newsletters, websites, looseleafs, books, strategic reports, databases, webinars and conferences. Learn more at

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