The Employee Retirement Income and Security Act (ERISA) of 1974 exempts self-funded plans from state insurance and other laws, including reserve requirements, mandated benefits, premium taxes, and consumer protection regulations.13 Because larger firms have more employees over whom to spread the risk of costly claims, self-funding is more common and less risky among larger firms than among smaller ones.
- Similar to last year, 54% of covered workers in 2005 are in a plan that is completely or partially self funded (Exhibit 10.1).
- Covered workers in smaller firms are less likely to be in a self-funded plan compared to covered workers in larger firms. On average, 13% of covered workers in small firms (3-199 workers) are in a self-funded plan, compared with 53% of covered workers in midsize firms (200-999 workers), 78% in large firms (1,000-4,999 workers), and 82% in jumbo firms (5,000 or more workers) (Exhibit 10.1).
- The prevalence of self funding is relatively high in PPO plans (65% of covered workers in PPOs are in a self-funded plan) compared to HMO plans (32%) and POS plans (36%) (Exhibit 10.2).
