More Small, Medium Firms Choosing Self-Insurance

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The Affordable Care Act appears to be driving more small and midsized employers toward self-insurance. The change could impact costs for a wide swath of the public.

More small and midsized firms are opting for self-insured health plans, according to a new report.

The Employee Benefit Research Institute says 39% of private-sector establishments now have at least one plan that is self-insured, up from 28.5% in 1996. The number of employees enrolled in self-insured plans has increased from 58.2% to 60% between 2013 and 2015, the group said.

The results are based on data from the US Census Bureau’s Medical Expenditure Panel Survey Insurance Component.

Report author Paul Fronstin, director of EBRI’s Health Research and Education Program, said the findings “are consistent with the prediction that the ACA would cause more small and midsized employers to adopt self-insurance plans.”


The motivation appears to be cost savings. The Affordable Care Act’s passage in 2010 brought a spate of new mandates, fees, and taxes, thus driving up the cost of health coverage overall. However, self-insured plans aren’t subject to all of those mandates. For instance, self-insured plans aren’t required to include coverage for the ACA’s package of 10 “essential health benefits,” including pediatric oral and vision care. As a result of these and other factors, self-insurance is generally less expensive for employers.

However, self-insurance also carries a major risk. If a group’s health expenses exceed the amount paid in insurance premiums, the self-insured employer is stuck paying the extra costs. If an employer uses an outside commercial insurer, the insurer is on the hook for cost excesses. For this reason, self-insurance has traditionally been more common among large employers, since they have a larger pool of people paying into the insurance fund. Many self-insured firms purchase stop-loss insurance policies, which help cover costs if an employers’ health insurance claims exceed a pre-determined amount.

Notably, EBRI found some large employers are now turning away from self-insurance. The percentage of large employers choosing to self-insure dropped from 83.9% to 80.4%.

The shift toward self-insurance could have wider implications for the insurance market. A 2012 report from the Center for American Progress noted that small employers with younger employees have a strong financial incentive to opt for self-insurance, since their employees’ health costs are likely to be lower. However, small employers with older employees would be more likely to stay in the commercial market, skewing the pool of commercial customers older and likely driving up premiums for everyone in the commercial market.