Loopholes Exploited Under Self-Insured Plans

Bill Randell, president of Advantage Benefits, a Worcester-based insurance brokerage agency that works for major insurers to sell plans to employers, says so-called "self-insured plans," are vulnerable to abuse:

Self-insured plans fall under the auspices of the Department of Labor, not the State Division of Insurance. As a result, the state mandates found in fully insured plans are not automatically included in self-insured plans. The plan administrator can pick and choose which mandates will be included or not. Many times we see, for example, in vitro fertilization not covered with self-insured plans.

Let's assume you work for a company with a self-insured plan that excludes in vitro fertilization, which can cost an estimated $10,000 to $15,000 per cycle. What would you do? Why not simply buy an individual plan since Massachusetts has a never ending guarantee issue open enrollment process. The in vitro fertilization would then be covered and the person could simply cancel the individual policy when no longer needed.

Here is another example of abuses in our system. Assume you are a self-insured group with a $50,000 specific deductible and you have an employee scheduled with cancer treatments and surgery in the next 90 days. Once again, that person could purchase an individual fully insured plan and file those claims under that policy. By removing this employee from the self-insured group plan, it would save over $50,000 in claims costs and maintain a good claims history for the group renewal. At the same time, shifting this claim costs to the 1-50 markets.

There is more. Many groups in the 1-50 markets are starting to examine self-insured plans. Most insurance carriers, Blue Cross for example, will not release a quotation unless there are 100 employees or more. Ten years ago, no employers with less than 50 employees were considering self-insuring, but with today’s increases, employers are desperate and are considering it.

The abuse in this example is that the group can implement a self-insured plan, and in the event their claims experience is poor and they are aware of continued large loss claims, the group can simply go back to the fully insured market. In other words, all the groups with low claims will leave the regulated market and those with high claims will stay. Over the past 6 months I have seen insurance companies begin marketing self-insured plans that will cover groups with as low as 5 employees.

If we do not start controlling costs in the 1-50 markets, the loss ratios and corresponding premiums will just keep increasing as more groups realize the never ending open enrollment loophole and smaller groups with good claims move towards self-insurance.