Health Insurance Self-Funding Across America

This video provides an in-depth exploration of health insurance self-funding trends across the United States, highlighting significant geographic and employer-size variations. The speaker, Dr. Bricker from AHealthcareZ, begins by presenting a visual map illustrating areas with higher (dark green) and lower (light orange) concentrations of self-funded employers. He identifies a "self-funding alley" in the Midwest and South (e.g., North Carolina, Virginia, Kentucky, West Virginia, Ohio, Indiana) where self-funding rates are notably high, contrasting with lower rates in populous states like California, Arizona, Nevada, and the Northeast (e.g., Massachusetts, New York, New Jersey, Maryland).

The analysis then delves into specific data, breaking down self-funding rates by employer size: companies with 100-1,000 employees (mid-market) and those with over 1,000 employees. While large employers consistently show high self-funding rates (around 77% nationally), the mid-market segment exhibits considerable variability across states, with a national average of 42%. This mid-market segment is identified as the key area where employers' cost-consciousness regarding health benefits is most evident. The speaker posits that states with higher mid-market self-funding rates are more focused on the financial performance and efficiency of their employee health plans, as self-funded plans are generally less expensive without compromising quality.

A core theme explored is the "push and pull" dynamic influencing self-funding decisions, primarily driven by business margins and health insurance carriers. Low-margin businesses, such as grocery stores or manufacturing (e.g., auto parts in Ohio and Indiana, general manufacturing in Pennsylvania, Iowa, Georgia, Carolinas), are "pushed" towards self-funding due to their intense focus on cost-cutting. Conversely, high-margin businesses like software, technology, finance, and biotech (prevalent in California, New York, Massachusetts) are less likely to self-fund because their substantial profits reduce the urgency for aggressive cost-cutting in health benefits. The "pull" factor comes from health insurance carriers, who actively discourage self-funding, especially in the mid-market, as they generate more profit from fully insured plans. The video concludes by noting a "social proof" or "herd mentality" among employers, where local CFOs and HR heads influence each other's decisions regarding self-funding.

Key Takeaways:

• Geographic Disparity in Self-Funding: There are significant regional differences in health insurance self-funding rates across the U.S., with a "self-funding alley" in the Midwest/South showing high rates and populous coastal states often exhibiting lower rates.
• Mid-Market as a Key Indicator: The self-funding rate for mid-market employers (100-1,000 employees) is the most variable and indicative of a state's overall focus on cost-effective health benefits, averaging 42% nationally but ranging widely.
• Large Employers Consistently Self-Fund: Employers with over 1,000 employees show a consistently high rate of self-funding (around 77% nationally), indicating that for larger organizations, self-funding is a standard practice regardless of location.
• Business Margins Drive Self-Funding Decisions: Low-margin industries (e.g., manufacturing, grocery) are strongly incentivized to self-fund to cut costs, while high-margin industries (e.g., software, finance, biotech) are less focused on health benefit cost-cutting and thus less likely to self-fund.
• Health Insurance Carriers Discourage Self-Funding: Insurance carriers actively work to keep employers, particularly in the mid-market, on fully insured plans because these generate higher profits for them compared to self-funded arrangements.
• High-Margin States Have Lower Self-Funding: States with a high concentration of high-margin businesses like California (tech, entertainment), New York (finance), and Massachusetts (software, biotech) exhibit significantly lower mid-market self-funding rates (e.g., CA 31%, NY 29%, MA 35% vs. national average 42%).
• Low-Margin States Have Higher Self-Funding: Conversely, states with a strong manufacturing base and other lower-margin industries, such as Pennsylvania (55%), Indiana (67%), Ohio (56%), Iowa (58%), Georgia (59%), and the Carolinas (61%), show much higher mid-market self-funding rates.
• Self-Funding Offers Cost Savings: Self-funded health plans are generally presented as a less expensive option for employers without necessarily compromising the quality of care provided to employees.
• Social Proof and Herd Mentality: Employer decisions regarding self-funding are influenced by local peer groups; CFOs and HR heads often adopt practices common among similar companies in their geographic area.
• Specific State Examples: The video provides concrete data points, such as Nebraska having a very high self-funding rate (79%) for mid-market employers, potentially due to its concentrated employer base and social proof dynamics.

Key Concepts:

• Self-funding (health insurance): An arrangement where an employer directly assumes the financial risk for providing healthcare benefits to its employees, paying claims out of its own assets rather than paying fixed premiums to an insurance carrier.
• Fully insured (health insurance): An arrangement where an employer pays a fixed premium to an insurance carrier, and the carrier assumes the financial risk for paying employee healthcare claims.
• Mid-market employers: Companies typically defined as having between 100 and 1,000 employees.
• Low-margin vs. High-margin businesses: Refers to businesses with different profit margins, influencing their sensitivity to cost-cutting measures, including health benefits.
• Social proof/Herd mentality: A psychological phenomenon where people assume the actions of others in an attempt to reflect correct behavior in a given situation, often seen in business decision-making.