To Self-Insure or Not - That is the Question for A Large Group Health Plan

This is a study about the financing of large group health insurance in the United States. Almost 8 in 10 covered employees in private large firms are enrolled in self-insured (or self-funded) health plans in contrast to only 20 percent of employees in small firms. More than half of all large standard (non-supplemental) health plans are self-insured although their number is decreasing. Considering their significantly greater risk of exposure and transaction costs, the question for scholarly investigation is why (and how) do private large firms self-fund employer-sponsored health insurance? Using plan-level data from health plan administrator filings of Forms 5500 and Summary Annual Reports (2014-2022) with the U.S. Department of Labor, six variables are examined in this study relative to large group self-insurance: industry/sectoral distribution, plan size/enrollment, plan administration, benefits coverage, plan assets and investments, and statutory compliance. Findings suggest that industry/sectoral and enrollee distributions of large health plans are not widely dispersed while their assets and investments and statutory exemptions offer comparative advantages. These plans have also increasingly relied on stop-loss insurance, third-party administration, supplemental health benefits, and less major medical plans to mitigate actuarial risks that involve considerable financial exposure to fluctuating claims costs, potential for catastrophic claims, and cash flow unpredictability. The intertwining theoretical and practical implications of large group self-insurance in healthcare finance and risk management are addressed by way of conclusion.