Establishing an Analytical Framework for Measuring the Role of Reinsurance in the Health Insurance Market. 3. Self-funded Employers


There are a number of surveys that collect basic information about self-funded health plans, including the proportion that purchase some form of insurance to cover a portion of plan losses. Arrangements that use insurance to limit plan losses are sometimes referred to as partially self-insured plans or minimum premium plans depending on the survey (we will use the term stoploss insurance in this section). We contacted a number of agencies and firms that conduct annual or periodic surveys of employee benefits, including:

  • Bureau of Labor Statistics, Department of Labor
  • Tillinghast
  • Foster Higgins
  • Hay Huggins
  • KPMG

We found that while several of these surveys collect (or used to collect) information about the presence of individual or aggregate stoploss arrangements, none of the surveys collected additional detail about the terms of the insurance, such as the stoploss threshold or coinsurance amounts. Representatives of the Bureau of Labor Statistics told us that they previously attempted to collect information on whether or not an arrangement was a minimum premium plan (which they defined as the presence of some insurance), but they ceased doing so because they believed that the information that they were collecting was not reliable, particularly from smaller employers. Information about the presence of individual and aggregate stoploss coverage from the surveys conducted by Foster Higgins and KPMG is displayed in Attachment D.

Although none of the annual or periodic employer surveys collected detailed information on employer-purchased stoploss arrangements, three data sources we identified collected (or are collecting) some additional details about such arrangements. The first is a survey conducted in 1996 by KPMG and Gail Jensen, which collected information about the stoploss thresholds of stoploss insurance purchased by a sample of employers with self-funded health benefit plans. The survey also collected information about the presence of a minimum premium plan, but no specific information about the risk allocation under the plan. The second is the National Employer Health Insurance Survey (NEHIS), conducted by three agencies in the Department of Health and Human Services (the Agency for Health Care Policy and Research, the National Center for Health Statistics, and the Health Care Financing Administration), which collected information on the premiums paid by self-funded employers for stoploss coverage. The third is a survey that is currently in the field, sponsored by the Robert Wood Johnson Foundation and being conducted by the Rand Corporation, which, like the KPMG/Jensen survey, is asking about the stoploss threshold of stoploss insurance purchased by large and small employers with self-funded health benefit plans.

Information compiled for the Lewin Group by KPMG and Jensen on the stoploss arrangements and similar arrangements reported by employers in their survey is shown in Tables E1 to E6 in Attachment E. These tables show the percentage of employers (by firm size) reporting to have partial self-insurance or other risk arrangements, the distribution of those other risk arrangements across three categories (minimum premium plans, reinsurance or stoploss, and other), the percentage of smaller firms (less than 200 employees) with stoploss arrangements, and the distribution of those stoploss arrangements by threshold level.

While the type of information contained in the KPMG/Jensen survey would help policymakers begin to understand the role of reinsurance, particularly in the small employer market, the extremely small percentage of the small employers in the sample reporting the presence of stoploss coverage (less than 1 percent of employers covering less than 4 percent of workers) means that these numbers should be considered with a great deal of caution.17

The second employer survey that collects some detailed information on employer-purchased stoploss coverage is NEHIS. As part of its efforts to collect information on health insurance costs, NEHIS asked employers to report the premiums paid for stoploss coverage, although no other information was collected about the terms of the stoploss coverage.

Although the lack of information on stoploss coverage terms will limit the scope of the analysis of reinsurance that can be made with the NEHIS data, the stoploss premium information still may permit some general inferences to be made about the level of risk being transferred to stoploss insurers by employers. Such an inference would rest on assumptions about the general types of stoploss coverage available in different markets and its costs (varied to the extent possible by employer size, geography and other relevant characteristics). The exercise would involve estimating the amount of stoploss coverage employers could purchase, given the premiums that they reported paying and assuming that they purchased the types of coverage typically available to similar employers. While the resulting estimates of the amount of reinsurance purchased would be subject to a great many caveats, they would mark an improvement over what is known today and may serve as a starting point for other research efforts.

Data from NEHIS should be available sometime in the Spring of 1997. One concern about the data is that conversations with representatives of the National Center for Health Statistics (one of the agencies compiling NEHIS results) indicated that the response rate for the questions related to stoploss premiums may be relatively poor. This would diminish the survey's usefulness for analyzing the level of stoploss coverage purchased by employers and may make any analysis based on the responses suspect.

The second employer survey that collects some detailed information on employer-purchased stoploss coverage is being conducted by the Rand Corporation and the Research Triangle Institute for the Robert Wood Johnson Foundation. The Robert Wood Johnson Foundation Employer Health Insurance Survey asks employers with self-funded plans whether they purchase specific or aggregate stoploss coverage and, if so, what the coverage thresholds for the stoploss coverage are. The survey was still in the field at the time this report was completed, so we do not know what types of responses the survey is getting and what the response rate is. The principal advantage of this survey is that it has a large sample of employers, including small employers, in each of the states in which the survey is being conducted. Another advantage is that the wording of the questions does not assume much knowledge about stoploss on the part of the employer. While some questions about the structure of stoploss arrangements would remain, such as the extent to which employers retain any share of the risk above aggregate or specific stoploss thresholds (e.g., retain a coinsurance obligation), if the survey succeeds in getting good responses, it has the potential of providing substantially more information than we have today about the way that small and large employers use stoploss coverage and the level of risk that is being assumed in the reinsurance market.18

17 The large percentage of small employers with conventional plans that did not know their threshold (almost one-third) also raises a note of caution.

18 The survey also asks whether the employer has a minimum premium plan, but does not ask any detailed questions about such arrangements (as it does of those with stoploss policies), limiting the usefulness of the data somewhat.