When Matt Weaver came to Kansas City in 2015, he was on his own, a one-man branch of Alabama-based insurance broker Cobbs Allen.
That didn’t last long. In the age of the Affordable Care Act and rising health insurance premiums, Weaver found so much work helping small and midsize Kansas City businesses self-insure that the local Cobbs Allen branch now has 12 employees.
“If you go to Florida, Texas or on the coast, this is rampant,” Weaver said of businesses deciding to self-insure. “It just isn’t necessarily in Kansas City, which is good for me. It’s why we started our office, and it’s why we’re picking off groups hand over fist.”
Self-insurance, in which companies pay employee medical costs directly rather than buy a plan from a health insurance company, has traditionally been the realm of large corporations. It helped them avoid the hassle of navigating different insurance regulations for employees in different states, and having more employees helped them spread the risk of medical costs.
But self-insurance has become more cost-competitive for smaller companies since certain employer mandates in the Affordable Care Act, commonly known as Obamacare, went into effect. Being self-insured allows companies to avoid the law’s required benefits as well as its taxes on insurance plans.
It’s hard to quantify how many employers have moved to self-insurance locally because neither the Kansas Insurance Department nor the Missouri Department of Insurance keeps data on it. But a study by the Employee Benefit Research Institute found that the number of small businesses (fewer than 100 employees) offering a self-insured plan rose from 13.3 percent to 14.2 percent between 2013 and 2015. Midsize businesses (100 to 499 employees) offering a self-insured plan rose from 25.3 percent to 30.1 percent.
Among large employers, the percentage actually decreased, from 83.9 percent to 80.4 percent.
Some analysts had predicted more businesses would turn to self-insurance after the ACA passed, calling it an Obamacare “loophole.”
Mike Ferguson, president of the Self-Insurance Institute of America, acknowledged the tax benefits, but said he did not think the increase in self-insurance among smaller employers was due to Affordable Care Act regulation avoidance.
He said few employers would offer plans that don’t cover ACA essential health benefits, like dental care, mental health treatment and birth control, because employees expect those things to be covered. Instead, Ferguson said self-insuring allows companies to have more information about what health services are driving up costs so they can offer incentives to avoid them.
Ferguson said he knew of a self-insured employer getting gouged by unnecessary emergency room visits who decided to waive all out-of-pocket costs for urgent care.
Weaver said the shift to self-insurance started earlier in other parts of the country, and competition among brokers was stiff. But Cobbs Allen saw Kansas City as an area ripe for expansion.
The company now has between 40 and 50 clients in the metro area, Weaver said. Cobbs Allen negotiates directly with health care providers on their behalf and also signs deals with third-party administrators that handle claims, pharmacy benefits managers and “stop loss” insurance providers that protect the client against unpredictable, high-cost medical claims.
Other companies also do that, but Weaver said they all do it in slightly different ways and target employers of different sizes.
For companies with more than 100 employees, Weaver said Cobbs Allen usually does traditional self-insurance plans. For those with fewer, it often does level-funded plans, which he called “a baby step toward being truly self-funded.”
In level-funded plans, the employer pays a regular monthly fee to the third-party administrator, similar to an insurance premium, and if the claims costs are less than those payments, the employer gets a refund at the end of the year.
Self-insured plans generally expose employers to more risk, and Weaver said Kansas City employers were initially reluctant to do anything different than just buy a traditional insurance plan year after year.
But with costs of those plans rising, more are taking the plunge to self-insure, and that means more growth for Cobbs Allen.
“We just made two new hires today,” Weaver said. “We’re growing fast, but strategically.”