Hoosier employers are increasingly relying on self-insured plans to deliver care to their workforce, even as the nation looks elsewhere. Photo from Franchise Opportunities.

By Whitney Downard
Indiana Capital Chronicle

INDIANAPOLIS — In the face of growing health care costs, many employers have turned to self-insured plans, where they assume the financial risks on the chance that they might save some money. And it’s a popular option for Hoosiers.

Even as reliance on self-insured, or self-funded, plans shrinks across the country, the insurance option is growing in Indiana. The average privately employed Hoosier is 20% more likely to be enrolled in a self-insured plan than the average privately employed American.

Dr. Nir Menachemi, the dean of the Indiana University Richard M. Fairbanks School of Public Health, co-authored a study published in November breaking down the reasons for Indiana’s health care costs. One of the most significant takeaways was Indiana’s reliance on self-insured plans when compared to the national average.

“Indiana is bucking the trend nationally and in the neighborhood in terms of … having more people in self-insured plans,” said Menachemi.

Nationwide, self-insured plans fell by 6.64% between 2020 and 2024. All of Indiana’s neighbors reported decreases in their self-insured rate but Indiana bucked the trend — instead increasing by 6.11% during that time.

In Indiana, two-thirds of private sector employees are enrolled in self-insured plans — but this number is likely an undercount, since the data only includes private-sector employees. Some of Indiana’s largest self-insured, public organizations aren’t included in this analysis.

But self-insured employers are also likely to pay more in hospital costs. The relatively high number of self-insured employers compared to other states might also help to explain why lawmakers have focused much of their attention on reducing hospital costs as part of their overall efforts to tackle the state’s high health care costs.

What Is A Self-Insured Plan?

Self-insured plans are one of a handful of options available to employers looking to purchase health insurance plans for their employees. For certain employers — especially those with a relatively healthy workforce — opting for a self-insured plan can be a way to reduce health care costs.

Actuaries will calculate an estimated cost for insuring a workforce and a fully insured plan will include some overhead for the insurer administering the plan. Insurers, seeking a profit, will also set a premium that allows for that while also accounting for any state-specific administrative costs.

“Insurance is buying and selling risk. Self-insurance means not buying and selling risk. And if I know my population is healthy enough and, generally speaking, more educated — why should I pay someone else to take the risk that I’m happy to bear myself?” Menachemi said. “I’ll put all that money in the bank and just pay for people’s health care as they need it.”

The employer can then keep whatever’s left unused at the end of the year.

But the plans come with a significant drawback: a loss in contract negotiating power.

Parties negotiate prices with each contract, with insurers using their large pools of enrollees to get lower prices from providers like hospitals. These negotiations are largely impacted by the presence of competitors, such as multiple insurance options or health systems.

But self-insured employers don’t have that same strength, even though they are likely to tap insurers as Third Party Administrators to handle billing services and the like, including provider arrangements. Menachemi noted that researchers don’t have access to a lot of details about administrators and payment decisions, which are usually considered proprietary and typically are only publicized following a lawsuit.

Previously, those third-party administrators didn’t have any specifically outlined duty to employers, though a recent legislative effort seeks to rebalance the scales.

“I’m super eager to see how this all plays out,” said Menachemi, also naming other health care priority bills from the year’s legislative session, such as one studying hospital pricing.

Menachemi’s analysis, a follow-up from a similar study in 2020, recommended that self-insured employers counter this by grouping together for their negotiations to seek lower provider prices.

“If six large employers got together and basically said, ‘We want to buy insurance together.’ That’s a purchasing alliance and then they’d have more power than any one of them alone,” Menachemi said. “That’s a market solution that doesn’t require regulatory intervention.”

State lawmakers can’t regulate self-insured plans because they fall under a federal law known as ERISA, or the Employee Retirement and Income Security Act. Initially developed to create a universal set of standards for insurers across state lines, legislators have been stymied in some of their transparency efforts by the federal statute because they can’t compel companies to participate in efforts like the All Payers Claims Database.

At a panel with the Indiana Fiscal Policy Institute at the end of May, employers of some of Indiana’s largest employers shared their perspectives on growing health care costs.

Lawrence McCormack, the director of government relations with Cummins, said the company operated in all 50 states — making self-insurance attractive — and had “some visibility” when it came to different costs across state lines.

“Indiana’s costs are higher than what we see in some other states and so what we do, and what we’ve been doing for the last five or 10 years, is really working with the legislature, with some of the policy makers, to figure out, how do we address these health care costs?” McCormack said. “… we just want to see that addressed because it is truly making Indiana less competitive with our neighboring states when we’ve done such a good job of creating a really strong business climate here.”

More About Indiana

But, as the IU study also details, Hoosiers are generally less healthy than other Americans, across various measures for mortality, asthma, smoking, diabetes and cardiovascular disease.

Overall, Indiana’s mortality rate is 16% higher than the nation’s rate. Public health efforts seeking to reverse these stats have recently seen significant state funding cuts.

For the most part, the average employee wouldn’t notice a difference between a fully insured or self-insured plan. However, self-insured plans are more likely to also have lower monthly premiums but higher deductibles.

This requires an enrollee to pay more out-of-pocket costs — another area where Indiana is an outlier — before insurance coverage starts.

The prevalence of high-deductible health plans — which covers 64% of Hoosiers compared to 54% nationally — partially explains why Hoosiers pay more in out-of-pocket costs than their peers as employers shift costs to employees in another attempt to save money. While this plan type grew by 9% nationwide between 2020 and 2024, it increased by 23% in Indiana.

According to a New York Times article from earlier this month, health care industries are now the top employer in 38 states — but not Indiana, where manufacturing is still the top employer. Outside of manufacturing, other labor-intensive industries — such as agriculture, which is also a major Indiana employer — are more likely to be self-insured than other professions.

With these types of companies playing an outsized role in Indiana, it’s clear that self-insurance is something stakeholders will continue to consider in the face of increasing health care costs.

“If you want to be a business-friendly state, you’re going to attract the kinds of employers that are increasingly … going to be self-insured,” Menachemi said.