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The home for VPR's coverage of health and health industry issues affecting the state of Vermont.

Some Companies Eye Self-Insurance To Avoid Exchange

As a possible delay looms for the full operation of Vermont Health Connect, the state’s health insurance website, some mid-sized companies are looking for ways to avoid the exchange altogether.  

One alternative is called ERISA.

ERISA is not a health insurance product. It’s a federal law that allows companies to fund their own insurance claims. Many use an insurance company only to administer the employee benefits. That law also gives companies some protection against catastrophic losses in the event of unusually costly claims against them.

Full disclosure—VPR is exploring this option.

Self-insurers fall under federal, not state regulation. That means so-called ERISA companies do not need to pass through the state health care exchange. Tim Ford is Executive Vice President of Hackett, Valine, and MacDonald. He says many of his corporate clients are looking for ways to avoid that online marketplace.

“The plans in the exchange are not comparable to what most businesses have and that in itself is pushing a lot of businesses to look for other options,” Ford said.

He says only one insurer, Cigna, is marketing an “administrative services only product ”—called an A-S-O—in Vermont.

Ford believes self-insurance can be a good idea, but he doesn’t recommend it to very small businesses or those with older, sicker employees than the norm.

“You might have some specific claim activity that might prohibit you from doing it or make it not make  sense financially. But honestly, if all those other things lined up and you did not have to buy insurance in the exchange then it makes a lot of sense,” Ford said.

But Vermont’s Commissioner for Health Access believes says it makes more sense to buy through  the exchange. Mark Larson was unavailable for an interview but said in an email that “Small businesses who choose to provide health insurance will most likely find it is more affordable and practical to do so through Vermont Health Connect. When self-insuring, the employer accepts an increased amount of financial risk.”

But insurance broker Tim Ford says he couldn’t find what he wanted for him and his 49 employees on Vermont Health Connect, so he found a loophole. He renewed his company policy before it expired, which grandfathers his plan and gives  him more time to look into self-insurance. 

“I bought myself nine months to sort it out so that’s what I am thinking at this point,” Ford said.

Ford says state regulators strongly discouraged that early renewal off ramp, and he can understand why. The companies who self-insure tend to be large--like IBM—or smaller ones without too many costly claims. Ford says they are the very customers that  health insurance policies marketed through the exchange can least afford to lose. 

“I don’t think there are going to be a lot of groups between 25 and 50 that are going to self-fund but the ones that do are going to have good experience, Ford said.

In insurance jargon, “good experience” means relatively few or low claims. It makes self-insurance affordable, especially with a lot of policy holders.  So in 2016, when larger companies with 100 or fewer employees are supposed to join the exchange, Ford predicts the ERISA option will become even more attractive.

Charlotte Albright lives in Lyndonville and currently works in the Office of Communication at Dartmouth College. She was a VPR reporter from 2012 - 2015, covering the Upper Valley and the Northeast Kingdom. Prior to that she freelanced for VPR for several years.
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