"The Self-insurance Boom: Employee Health Benefits and the Changing Role of Insurance Companies, 1974 to 2010"

Most Americans under age 65 with health insurance are covered through employer-sponsored group health care plans. Today, the majority of these plans are self-insured, meaning that the employer retains part or all of the risk in-house. Using federal government records, insurance industry data, and discussions in trade and popular publications, this paper traces the growth of self-insurance in health coverage since the 1970s and explores the cooperative relationship that has developed between insurers and self-insured employers.
Self-insured health plans were less common before the Employee Retirement Income Security Act of 1974 (ERISA), which established a single framework for self-insured plans, preempting state regulations. Federal regulation made such plans especially attractive to employers operating across state lines, just as rising health-care costs and the resultant increases in insurance premiums led employers to seek ways to cover employees at lower cost.
Both traditional insurers and new companies began to offer services as third-party administrators (TPAs). In the 1980s and 1990s, as managed care grew in the United States, TPAs offered employers access to insurers’ provider networks. Insurers, meanwhile, saw third-party-administration as a hedge against losses in their fully insured lines. By the 1990s, more than half of large employers self-insured their employee health plans. This trend continued in the 2000s. The passage of the Affordable Care Act in 2010 accelerated the move toward self-insurance, since self-insured plans enjoyed exemptions from certain ACA requirements, including coverage of essential health benefits, regulatory review of premium increases, and medical loss ratio rules, limiting administrative expenses to 15-20% of premiums. This symbiotic relationship between insurers as TPAs and self-insured employers suggests the industry’s ability to adapt to expansions of government-sponsored health insurance.