Employers have increasingly adopted funding methods that are alternatives to the traditional group insurance contract. Both medical expense and disability income insurance are made available through self-insured or self-funded plans of employers, labor unions, and fraternal or cooperative groups. These plans may require enrolled members to share in the funding through dues or contributions. The benefits provided under these plans are similar to those of commercial group insurance contracts but usually are the amount desired and affordable by a specific group of individuals.
Larger employers, particularly those with employees in more than one state, are likely to provide benefits through a trust governed by Employee Retirement Income Security Act (ERISA). Because ERISA preempts state insurance laws under certain conditions, employers that use a trust or self-funding arrangement do not have to provide the specific insurance benefits mandated in a number of states. The additional costs of providing mandatory benefits, which often differ from state to state, have led to an increase in self-insured groups. Insurance companies may service these groups under administrative service only (ASO) arrangements or by minimum premium plans (MPP).
The continuing rise in health care costs is causing more and more employers to move to self-insurance. In general, the vast majority of large employers moved to some form of self-insurance in the 1970s and early 1980s. But as health insurance premiums have continued to rise, small- and medium-size employers have also turned increasingly to self-insurance. The percentage of employers self-funding their health benefit programs varies by type of plan. As might be expected, large employers are most likely to self-fund their health benefit plans. For example, with indemnity plans, 59 percent of employees with 500 to 999 employees self-fund compared with 97 percent of firms with 20,000 or more employees. Similarly, with PPO plans, the corresponding percentages are 65 and 91 percent. Three- quarters of all employer-sponsored HMO plans are community rated and 19 percent are experience rated. Only 5 percent of all HMO plans are self-funded. Most self-insured plans purchase some form of stop-loss coverage.’
U.S. Federal and State Governments
Over 44 percent of U.S. health care expenditures are spent at all levels of government for health and medical programs, including funding for research projects and construction of medical facilities. Expenditures of the federal government were more than double those at the state and local levels.
The majority of federal spending for health services is directed to six major groups:
persons eligible for Medicaid, persons eligible for Medicare, military personnel and their dependents, veterans, federal civilian employees, and Native Americans. The major part of state spending for health services is paid toward workers’ compensation medical expenses, state contributions to Medicaid, and the public health programs of the nation’s 53 official state health agencies.
Although most of the government programs are directed toward the indigent or to selectively defined groups, several important programs apply to the general public. These programs, discussed in chapter 22, are the benefits available from Medicare for medical expenses, from Social Security for disability, from workers’ compensation, and, in five States and Puerto Rico, from temporary disability plans.
MANDATED BENEFITS IN THE UNITED STATES
U.S. state laws increasingly mandate specific types and levels of benefits that must be contained in medical expense contracts. There are more than 1,000 specific benefits mandated by state laws and regulations; at least 200 of these apply to HMO’s. Recently, bills setting minimum requirements for coverage of hospital length-of-stay and bills requiring payment for emergency department services even in nonurgent circumstances have been adopted in a number of states. lb the extent that these laws and regulations apply only to benefits that are included in insurance contracts, employers can avoid providing these mandated benefits by using alternative funding methods that do not involve insurance contracts (e.g., self-funding).