When Your Employer is Also Your Insurer

A lovely young family in my life has a two-year-old son with a catastrophic, rare disease. Coupled with all the hard work required to keep him alive, angst about his future, and all the emotional turmoil any parent would feel- they are also fighting with their insurance company to cover his medical costs.

Their ordeal is even more untenable because their coverage comes through the mothers’s self-insured employer.

But “Why is it harder,” they ask? “Why is it harder to press your rights when your coverage is through your self-insured employer?” “Why does our policy look like it comes from an Insurance Company?”  “Why is my company self-insured?” “Why is my employer involved in our insurance in the first place?”

The only way I know how to answer their questions is to work through them in reverse order.

1. Why is my employer involved in our insurance in the first place?

America is the only country to connect health insurance with employment. Why?

Health insurance started becoming available to the public as early as the 1920s, but the connection between employment and insurance did not get solidified until a solution was offered to address a temporary crisis: World War II.

As more men shipped off to war the number of workers remaining dwindled, creating increased competition between employers. FDR had the National War Labor Board set a wage cap to stop the inflation of salaries, but health insurance benefits were exempt from the cap (and employer contributions towards the benefit were tax-free).

As the saying goes: the rest is history.

The increasingly common employment-based insurance system remained voluntary in our country* until 2010 and the passage of the Affordable Care Act (commonly known as “Obamacare”) which requires employment-based coverage for employers with 50 or more employees**

2. Why is my company self-insured?

As the cost of health coverage increased over the last number of decades, so too has the cost to employers.

According to the Kaiser Family Foundation 2017 Employer Health Benefitsresearch, the average employee premium last year was $6,690 per individual (and $18,764 to cover a family)- a 4% (for a family 3%) increase in one year. Similar escalations have occurred annually for years, and only promise to get significantly worse.

For businesses that are required to insure their employees (or those that find they must to remain competitive to attract the best recruits), self-insurance is an option that can offer more control over their expenses.

With the caveat that this is an extraordinarily complicated area of regulation under both state and federal control, a self-insured company sets funds aside to cover the cost of medical claims for their workforce rather than send that money to an insurance company to purchase policies. They can potentially save capital by paying the claims directly rather than the per/head premium required for traditional insurance coverage.

There are other advantages for companies that chose to self-insure; not only can they potentially save on the cost of offering health benefits, but they can also usually avoid state laws such as taxes and state-mandated coverage requirements.

As one more gift to companies that chose to self-insure, these arrangements fall under a federal law from 1974 called ERISA. That law supersedes state insurance laws and makes it exceedingly hard to sue a self-insured plan- but we will get back to legal action in a moment.

Leave it to say that there is a reason that more than 82% of companies with 500 or more employees, and 26% with between 100 and 499 employees, were self-insured as of 2015.

But the most significant difference between traditional benefit insurance and self-insured companies- indeed the most shocking difference for employees if they know it- is that self-insured businesses “have access to all their employees’ claims data, something not available to them through traditional health care programs.

That’s right- what most employees of self-insured companies do not know is that if they see a provider for a medical issue they want to be private- a pregnancy or infectious disease or an embarrassing injury- their medical records can wind up on the desk at their company’s HR department. 

There is law (HIPAA) that does not allow your boss to use your health information to make employment-related decisions- but how comfortable does that make you?

Surely not all medical visits are scrutinized by management, and not all companies would throw roadblocks to employees dealing with the unimaginable like my friends. But the potential is there.

And it gets worse when you have a dispute about your medical bills.

3. Why does our policy look like it comes from an Insurance Company?

Most self-insured companies don’t manage the claims of their people– they are busy concentrating on flying planesbuilding cars, or creating your next computer. Instead, they contract with a “Third Party Administrator” [TPA] which is an outside organization that does all the business of the insurance, while the employer is the bankroll that pays the medical bills.

And here is where it gets particularly misleading- the name on the employee’s policy is likely to be the TPA- which is (bear with me) in most cases an insurance company. For Example- your policy could be from Meritain Health, Inc. or CoreSource which sure look like traditional companies, but they are the 6th and 7th largest TPAs in the country (2010 figures).

Even more confusing- sometimes the package is from the well-known insurance company (such as Aetna), but the role of the TPA is hidden in the wee small print at the bottom, such as here.

Through self-insurance, an employer can hide behind the packaging from the TPA to appear as if coverage determinations are out of its hands, while the TPA can make decisions in the comfort of its role of “only minding the gate.”

This veiled system is why most people don’t know the person denying you coverage could essentially be your Boss- the packaging through the TPA makes it all seem … so normal. Just like any other policy.

4. Why does our policy look like it comes from an Insurance Company?

If you have health coverage directly from an insurance company- or even if you have a traditional policy through your employer- you can bring legal action against the insurance company if they fail to pay for the care guaranteed by the contract.

That is all an insurance policy is- a contract.

I don’t mean to imply it is easy to sue an insurance company. In addition to proving you are right (contract interpretation being famously slippery), you may also have to deal with state law that makes this different than- say- suing your neighbor.

But even so- if you bring legal action it is between you and that insurance company. 

When your health coverage comes from your self-insured employer the dynamic is dramatically different. Regardless if you sue the TPA or not (and remember ERISA may be in your way) at the end of the day any money you win will come from your Boss.

And that is the real difference that is facing my sweet young friends.

Because this is not a matter of law- it is a matter of reality. Who can afford to bite the hand that feeds them?

That is a hard message to deliver to a young family already dealing with the unimaginable.

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* I said earlier that the employer-based insurance system that grew out of World War II was optional until 2010- but that actually wasn’t true in two states.

Hawaii has a 1974 state law requiring employers of all sizes to insure “regular employees” and Massachusetts instituted a large-employer mandate under “Romneycare” in 2006 (this law was the model for “Obamacare”).

** The GOP-controlled Congress has been giving mixed messages about any plan to repeal the employer mandate in 2018- reportedly any discussion about returning to  the Affordable Care Act as a target diminished after the January retreat with President Trump.