As noted, private purchaser preferences for looser products and more flexible financing show little evidence of abating, certainly as long as labor markets remain tight. EBRI reports the number of lives now under self-funded arrangements is now over 55 million or more than one-third of all insured lives in the country51. More notably is that these employees in these arrangements are far less likely to participate in traditional HMO products as shown in Figure 10, which shows that while only 19 percent of employees in HMOs are self-funded; 67 percent of employers in PPO arrangements have self-funded coverage. This finding indicates that a continuing trend toward self-funding is almost certainly going to erode HMO enrollment further.
Figure 10. Percentage of Covered Self-Insured Employees in Product Type, 1999
Source: Kaiser/HRET Survey of Employer Sponsored Plans
The shift toward looser and self-funded products affects a health plan’s ability to contract with providers on a risk basis as a means to promote behavior change. It also makes it more difficult for plans to collect and use data on member experience and provider performance, because of a less than complete picture of utilization and cost that ensues in looser products. This has been characterized as a kind of “PPO-ifying” of the HMO industry because the potential impact of a health plan in this product is diluted and reduced larger to negotiating fee discounts with network providers that can be used simply to create benefit differentials for members/participants52.
Another facet of the shift to self-insurance for purchasers is that they also move themselves away from the state-level debates of benefit mandates that appear to again be on the rise and which apply only to insured products. While it might be natural to anticipate stronger alliances between health plans and employers in resistance to these mandates because of their asserted impact on premiums, the ERISA preemption diminishes the participation of self-funded employers in these kinds of debates in their statehouses.