Self-insured health plans could lose much of their autonomy, as federal health care reform could reshape requirements for their coverage.

“Self-insured employers are used to having a lot of control over their plans and don’t know what little changes [from federal health care reform] can do,” said Ken Huber, senior vice president of the employee benefit group for PSA Insurance & Financial Services in Hunt Valley, Md.

While final federal health care reform continues to take shape, much of what is included in separate Senate and House bills could affect self- funded plans, Huber said.

The possibility of a public option or government-sponsored insurance is of great concern to business owners, mostly mid-sized, offering self-insured plans because the resulting cost shifting will mean higher health care costs for everyone, said Michael Ferguson, chief operating officer of the Self Insurance Institute of America, a Washington, D.C.-based trade group with about 800 members. Self-insured plans cover about 75 million Americans, about one third of the nation’s workforce, according to the SIIA.

Possible ‘tipping point’

Mike Ferguson

“It’s going to lead to exaggerated cost shifting,” Ferguson told IFAwebnews.com. “At some point, there’s a tipping point. The employer is going to say, ‘I can’t handle this.’” The employer will choose to pay a penalty rather than pay for his employees’ coverage, he said.

If one employer drops his employees, others will follow, Ferguson speculated.

“There will be a domino effect that’s bad,” he added.

Self-insured plans have been shielded from state mandates on coverage through the Employee Retirement Income Security Act (ERISA), a 1974 federal law that sets minimum standards for most voluntarily established pension and health plans. Courts have ruled that this federal control of self-insured plans preempts state regulation.

If Congress enacts federal health care reform, self-insured plans will be forced to comply with any new requirements, Huber said. Employers might face a surcharge for offering so-called Cadillac plans, where the annual value of benefits exceeds $8,500 for individuals and $23,000 for families. Huber points out that benefits equaling $705 a month could draw the surcharge, a 40% tax.

Those new – and potentially costly – requirements could include a prohibition on non-coverage for pre-existing conditions, expansion of COBRA coverage to dependents up to 27 years old, and the termination of lifetime coverage limits, Huber said. Employers also could face fines for failing to meet new requirements.

“All of the sudden you have a lot to handle and take on a lot of exposure,” Huber said.

This story originally appeared in the January 2010 print edition of Insurance & Financial Advisor.