ASO Insights
Dennis Bolin and Rick Koven
08/18/2016
63%!
Quick Quiz.
More Americans are covered by (a) Medicare Advantage and Managed Medicaid combined, (b) insured group and individual health plans combined or (c) self-funded health plans?
If you said (c), self-funded plans, you’re right. Now one follow up. Self-funded plans cover (a) 10% more people than insured group plans, (b) 50% more or (c) about twice as many?
Again, (c) is the correct answer. Self-funded is the single largest market health plans have access to- by a lot! Self-funded medical plans now cover 63% of all employees enrolled in health plans, a new all-time high (Kaiser/HRET, 2015). 100+ million Americans are covered by self-funded plans, more than any other form of coverage. Among private health plans, self-funded has 44% market share exceeding commercial group plans at 23%, Managed Medicaid 18% and individual at 8% and Medicare Advantage at 7%. (Mark Farrah Associates, 2016).
Self-funded market share has steadily increased over the period 1999 to 2015. For large employers (> 1,000), self-funded is by far the predominant form of coverage. Medium and small employers have moved to ERISA plans as well, although there is far more room for additional growth in these markets. And all this growth in self-funded market share has come at a time when insured group coverage is shrinking market-wide.
These same trends are echoed for Independent and Provider Sponsored Plans. Sherlock Co. reports that in 2015, for the independent plans it follows, ASO membership increased 4.1% while commercial enrollment dropped by a similar amount (-4%).
For Health Plan Alliance member plans, ASO is a smaller but still significant and growing part of the portfolio. In 2016, 30 of the 49 Alliance member plans offer ASO (or TPA) services. ASO plans cover 2.2 million members of the total Alliance membership of 12 million or 18%. We have been following nine plans* with the largest ASO books of business for the five years since 2011. For these plans, ASO/TPA enrollment increased 40% over five years while commercial enrollment increased only 2%.
The growth of self-funded in an otherwise shrinking employer market is unmistakable. Why this is happening is less clear. The ACA had been predicted by many to be good for self-funding. And it has. The growth in self-funding continued unabated right through the first five years of the law and its implementation. What the data doesn’t yet support is the contention that ACA would spur a big move to self-funding for small employers. Small employer (<200) enrollment is 17% self-funded in 2015, up from 15% in 2009. The ACA makes self-funding more attractive because ERISA plans pay lower ACA fees, have no MLR limits, and allow for group underwriting of risk. Despite some efforts at the state level to regulate small group stop loss, coverage is readily available in most states to insure small employers against both catastrophic and aggregate risks.
Larger forces, independent of ACA, suggest future growth for self-funded no matter what happens on the political or regulatory front. Self-funded is cheaper than insured. Most observers peg that advantage between 5% to 10% of total cost. Taxes are less, administrative costs are lower and there is no risk charge. That last piece is key as the business of a health plan is increasingly seen not as managing risk but as managing care and the cost of care. HMOs and other insured products once had an advantage in comprehensive care management over more laisse faire style self-funded programs. But If self-funded frees up fixed cost dollars to focus on clinical and technology resources, and if those services are offered by standalone vendors, then the insured care management advantage may evaporate. Likewise, the best networks which were once available through insured plans, are now, increasingly, available from BUCA and others for lease to TPAs. The net result? If self-funded costs less, offers the same cutting edge cost containment along with broad and deep networks and reasonable risk control through stop loss, why wouldn’t it gain market share at the expense of insured plans?
What does this mean for Health Plan Alliance members? At the very least, it means that ASO is a market that requires management’s attention and consideration no matter if your plan is a veteran in self-funding, thinking about expanding in this market or on the sidelines for now. In my next blog, I will discuss some of the opportunities and challenges for Health Plan Alliance plans in self-funding.
In the meantime, one last self-funded quiz question:
Since 2010, self-funded gained the most market share in which type of plans: (a) HMOs, (b) PPOs or (c) HDHPs (high deductible)?
Stay tuned for the answer.
*AvMed, Health Alliance Plan of Michigan, Health Alliance Medical Plans, Presbyterian, Providence, Sentara, Rocky Mountain Health Plans, Select Health, Summa Care,
Contact:
Rick Koven
rckoven@gmail.com
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