Destabilization of the US Healthcare System Under the Covid Crisis

How secure is your employer health plan-this article reviews self-insured medical plans, which are largely unregulated and are estimated to impact 89 million employees and their families in the US. This table shows the greatest prevalence for self-insuring health plans are corporations with 500 or more employees, representing 90% of all employees on these plans. However, 13% of small employers with fewer than 100 employees are currently using this form of financing to pay for employee health benefits. This trend is increasing, which means more smaller volatile firms are assuming claims payment risk without insurance company guarantees. What happens to the employee healthcare for the 5.5 million employees and their families working for smaller firms when these businesses are forced to close because of Covid-19 or some other catastrophic loss? Will all of their medical claims be paid if the company goes bankrupt? Currently the only enforcement for these minimally regulated plans is through the Department of Labor, which requires annual reporting for plans which fall under the ERISA umbrella.

This table shows the number of self-insured corporate medical plans for 2019

Criteria	# of Private Employers	Proportion of US workforce	Total Employees 2019	% covered by self-insured plans	Total on self insured plans
#Ers >1000 Ees	23,139	0.362	84,243,192	0.91	69,079,417
# Ers w 500-999 Ees	18,645	0.125	13,714,500	0.82	11,245,890
# Ers 101-499 Ees	126,647	0.125	13,714,500	0.25	3,428,625
#Ers 50-100 Ees	169,239	0.289	31,707,924	0.13	4,122,030
All other	337,670	0.100	6,753,400	>.01	1,124,037
Totals	32,500,000	1.00	150,133,516		89,000,000
Notes on sources
Metrics for % covered on self-insured corporate plans from Health and Human Services, US Gov
Job metrics drawn from Bureau of Labor Statistics, US Gov
The total number of jobs in the US in 2018 was 156 million, the estimate above is for 2019
US added 1,716,000 jobs in 2019, using an average growth of 143,000 jobs per month
All other category uses an average 20 employees/firm  to estimate total employees
Total employees covered on any type of employer medical plan in 2018 was 156,500,000
Metrics for employees covered on employer plans drawn from Kaiser Family Foundation.org

The genesis of self-insured health and welfare plans grew from the 1974 Employee Retirement Income Security Act (ERISA) enacted to create accountability for pension plans, but there was a provision for self-insured benefit programs. A 1978 amendment to ERISA created Section 125 plans which meant insurance premium payments were not taxed in these employer plans (yet another way the US government currently subsidizes private sector healthcare). The exorbitant cost of US healthcare has been the paramount reason for the surge in self-insured healthcare plans. These are plans brokered by insurance agents and consultants, as method to control corporate expenses and cash-flows. Self-funded plans are somewhat like private pensions, as there is a promise or expectation that medical expenses will be paid, but no guarantee. This lack of protection for the employees and their families is by design. ERISA created a provision for self-insured healthcare plans to be exempt from state insurance commissioner regulations BECAUSE THEY ARE NOT CONSIDERED INSURANCE. Additionally, since 80% of the funding comes from the cash flow of the employers who choose these types of plans instead of traditional insurance, which has guarantees of payment, there is an element of risk which is not transparent to employees. Plan participants receive minimal information in a dull Department of Labor document called a Summary Plan Description when benefits change.
Crib Notes on Self-Insured Plans
Self-insurance consists of four basic components, payment of claims, reserves for claims incurred but paid after contract year-end or termination, administrative fees, and re-insurance for claims which exceed an agreed threshold. Under self-insured plans, only losses beyond the targeted stop-loss provision, say $100,000 for an individual claim are paid by a third party, known as a re-insurance company. So, the employer, even firms with as few as 50 employees, must pay medical claims for all of their employees from their cash flow and the contributions the employees make to the program. To many employees these self-insured arrangements look like insurance plans, because they include participation in a preferred provider network of clinicians, probably a managed RX plan, and issue identification cards. For additional information on how these insurance plans work read Chapter 16-Insurance 101 in my guidebook to the US healthcare system (link found at the end of this article)

Employers are not legally required to set aside separate funds for unpaid liabilities for health plan or employee benefit plan liabilities, although in generally accepted accounting principles this is recorded on the balance sheet as current liabilities. This is of concern because your company’s self-insured healthcare plan is paying your medical services out of its cash flow. And in most cases, employees have no idea what this is or if their health plan is solvent. Lehman Brothers and Enron are two large companies, who were very profitable that went bankrupt, both for fiscal malfeasance, and their employees lost a lot of money.

My Employer’s Healthcare Claims Are Backed by a Reinsurance Company-Do I Need to Worry?

Re-insurance companies sell contracts to employers to cover claims beyond a contractual ceiling and are not exempt from failure. Though 2008 is in the rearview mirror, 2020 promises to make that fiscal crisis look like a cakewalk. American International Group (AIG), one of the largest most lucrative insurance companies at that time would have gone bankrupt if the US government hadn’t taken over the company. AIG’s chief executive, Maurice Greenberg was prosecuted by the Attorney General for the State of New York for fraud and made a huge settlement for financial malfeasance, thanks to his promotion of junk mortgage bonds as part of their investment portfolio. Bad investment decisions are made all of the time by insurance companies, just like banks, and other financial service firms, mostly out of greed. This is why the Dodd-Frank Act sought to correct the financial risk the US financial system was exposed to by avaricious financiers.

Here is a partial list of re-insurance companies that have gone bankrupt

Lumberman’s Mutual Casualty Company-2013-health insurance company

Reliance Insurance Company-2013-reinsurance

Freemont Indemnity Insurance Company-July 2002-health & workers compensation company

Legion Insurance Company-2003-reinsurance risk through Mutual Risk Management subsidiary

Top re-insurance companies today

Lloyd’s of London-UK

Hannover Ruck SE-GE

Berkshire Hathaway-US

Everest Re LTD-US

Swiss Reinsurance-US and EU

 How Do I know If My Company Medical Plan is Self-insured?

All ERISA plans are required by law to provide a Summary Plan Description (SPD), which must be available to plan participants, so if you are enrolled in a corporate benefit program, you are entitled to review the document. In addition, any ERISA plan must file an annual 5500 report and employees may have access to it.  The annual report will list generic information, like total claims paid and total plan contributions in a reporting year and won’t be terribly insightful for you, but it’s a start. The information that you really want to know includes:

1.  Name of the re-insurance company- as this will allow you to look up the financial rating of this third party that is liable for payment of large medical claims above the stop-loss level your employer has chosen. You can review Standard and Poor’s or Moody’s to assess the financial status of this company.
2.   Find out what the stop-loss level is for your employer’s plan, in other words, when does the re-insurance company start to pay the claims rather than your employer-if it is a lower limit, that means your employer is conservative and not assuming much risk. If the ceiling is high, then it means your employer is assuming more risk for claims payment directly. In today’s terms stop loss levels at or below $100,000 per individual claim are considered conservative, but for small firms this may not be conservative enough.
3.  Once you see the total claims paid for enrollees on the Summary Plan Description (SPD) you can then gauge the “risk level” your employer has taken with the claims it is responsible for versus the third-party insurance company. Conservative companies have lower risk-levels, because they are paying a higher premium up front to transfer some of the risk for claims payment.
4.  If you have had a surgery or major medical expense recently you will have current information on the cost of healthcare and you can gauge how much your specific claims impact the total shown for the company for the plan year.
5.  If your employer has a benefits committee and you want to influence benefit plan decisions, try to get on the committee.

Covid-19 Pandemic Impact on Your Health Plan

With unemployment expected to reach 30% for much of 2020, the nation should be concerned about unfunded and minimally enforceable liabilities under health and welfare plans that are supposed to provide healthcare for 85 million employees. Yet, for an employee to even get access to information on her medical plan, she has to jump through all kinds of hoops, only to be offered scant information. Americans should demand more from their vaunted private sector healthcare plans including actual transparency, and proof of financial solvency for something as important as healthcare. As if that isn’t worrisome enough, the recent report from the Petersen Health System Tracker finds that there has been an 8% decrease in the number of employees who have access to company medical plans. (Matthew Rae, 2020) So, though roughly the same number of workers are covered on employer medical plans, the distribution is not equal for all workers. The same report found that only 24% of low-wage workers have access to employer medical plans.  If you are a low-wage worker, providing today’s “essential services” you are much less likely to have company provided healthcare. Yet the Trump Administration continues to attack the Affordable Health Care Act and Medicaid expansion, which is how many of these workers access health care. Your access to health care shouldn’t be based on your wage.  All of these reasons demand that healthcare become a national right, not a privilege for the lucky.

And this is the healthpolicymaven (a trademark in continuous use since 2007) signing off encouraging you not to sign blanket releases before you submit to medical procedures, do stipulate that for which you consent and for which you decline. This article was written by Roberta E. Winter, MHA, MPA, a freelance journalist, and is not subject to influence from medical device, pharmaceutical, hospital, or insurance industry sectors of the US healthcare system. For more information on the US healthcare system read;

https://www.amazon.com/Unraveling-U-S-Health-Care-Personal/dp/1442222972

Works Cited

Facts, Kaiser Family Foundation State Health. (2019). Health Insurance Coverage of Nonelderly 0-64. Retrieved May 1, 2020

Gaetano, C. (2017, April 7). More Americans Work at Big Firms Than Small Ones. The Trusted Professional-NYSSCPAs. (T. N. CPA's, Ed.) Retrieved May 1, 2020, from https://www.nysscpa.org/news/publications/the-trusted-professional/article/more-americans-work-at-big-firms-than-small-ones-040717

Matthew Rae, D. M. (2020, April 3). Long Term Trends In Employer Based Coverage. Peterson-Kaiser Family Foundation Health System Tracker. Retrieved May 1, 2020, from https://www.healthsystemtracker.org/brief/long-term-trends-in-employer-based-coverage/