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Self-Funding of Health-Care Plans by Small Firms: Risks and Reforms


  • Robert Pozen,

  • Anant Vinjamoori


Small employers that offer health insurance have usually offered fully insured products through traditional health plans. Recently, the Patient Protection and Affordable Care Act (ACA) has created new requirements for fully insured products that will entice more small firms to fund their own health-care benefits. However, self-funding poses significant risks to these small firms, their employees, and state exchanges. To mitigate some of these risks within current political realities, we recommend advance disclosures—to small firms of material changes in their stop-loss policies, and to their employees that premium subsidies are available only on ACA exchanges. We also suggest strengthening Small Business Health Options Program exchanges by broadening the availability of subsidies and building partnerships with brokers. Finally, we recommend an expanded role for brokers and third-party administrators in helping small firms improve their choice of health-care insurance.