Who is your mutual?
More and more employers are self-funding health insurance plans, circumventing state regulations and potentially increasing costs.
What is your mutual? If you live in the United States, the answer may not be the company listed on your health insurance card. Yet the true identity of your insurer can affect the scope of benefits and health care costs of your plan.
Many employers self-fund health insurance by assuming the risk themselves, becoming the insurer instead of paying premiums to an insurance company. In a self-funded plan, third-party administrators assist employers with insurance without assuming any risk. Third-party administrators are the insurance card companies that provide a network of providers and handle claims, while your employer pays their share of claims and passes the costs on to workers.
Self-funded plans have become increasingly common over the past 15 years. Sixty-four percent of workers in the United States have a self-funded health plan.
These plans, however, lack the protections of state law. The Employees Retirement Income Security Act (ERISA) exempts self-funded plans from state regulations.
Through ERISA, Congress has sought to “minimize the administrative and financial burden of complying with conflicting guidelines between states or between states and the federal government.” Although states have traditionally played the preeminent role in insurance regulation, ERISA has changed the position of states in regulating many health insurance plans, particularly self-funded plans.
Through a mechanism known as ERISA preemption, federal law now trumps state law. To ensure reliability and consistency in the insurance market, states are prohibited from regulating self-funded plans.
But this ban on state regulation only drives up healthcare costs, academics say. In addition, ERISA preemption may also affect worker health benefits and protections against certain billing practices.
To control surprise medical bills, for example, many states have passed laws to protect consumers. But for people with self-funded insurance, state laws dealing with surprise medical bills through insurance reform don’t offer protection because of ERISA. It wasn’t until the federal No Surprises Act took effect this year, instituting a nationwide solution to surprise medical bills, that workers with self-funded insurance gained protection.
ERISA preemption may also reduce the extent of benefits enjoyed by individuals. For example, ten states and the District of Columbia have expanded contraceptive coverage beyond what federal regulations required. In 2016, Maryland lawmakers passed a law that allows an individual to receive six months of birth control all at once, which is more generous than the coverage required by federal regulations. Unfortunately, people with self-funded plans in Maryland do not benefit from the law unless their employers choose to provide them.
Despite the potential for increased costs and reduced benefits for workers, employers continue to self-insure as it can be cumbersome to comply with different state regulations, especially for large employers operating in multiple states. . Self-funded insurance also allows employers to bypass state health insurance premium taxes. But even with tax savings and fewer benefits, costs can increase because employers don’t have the tools to monitor how third-party administrators make billing decisions.
With self-insurance, employers pay third-party administrators to develop provider networks and handle claims. The third-party administrator, the company on an individual’s insurance card, negotiates rates with providers and ensures billing codes for claims are correct, telling the employer how much they owe and taking fees of administrator.
Employers sometimes struggle to hold these third-party administrators accountable. Even large, sophisticated employers can miss false accusations. A federal appeals court recently ruled that Aetna, a third-party administrator, had unfairly enriched itself by charging Mars, a self-insured company, a fictitious billing code to hide the fact that Aetna had subcontracted with another company managing chiropractic services.
According to a lawyer who frequently handles cases against third-party administrators, employers report that the system is too complicated to challenge accusations made by third-party administrators. And people on these plans are in a different regulatory regime than people who aren’t covered by self-funded insurance plans, making it more difficult to appeal decisions made by a third-party administrator.
In the absence of broader federal regulation, and because current federal laws and regulations encourage employers to self-insure, the majority of workers in the United States who benefit from self-funded plans face potentially higher, to reduced benefits and to a more difficult situation. complaints appeal process.
But a recent U.S. Supreme Court decision ruled that ERISA supersedes state regulations of the prices that health care providers and other entities charge for drugs or other items and services. Since this case did not explicitly address the issue of self-funded insurance, scholars still advocate that states regulate self-funded insurance plans directly.
In the meantime, employers will continue to struggle to understand the billing practices of third-party administrators, and workers will miss out on national regulations that protect consumers covered by other health insurance schemes.