U.S. Health Insurers' “Main Job” vs. “Side Job”

A U.S. district judge on September 4, 2025 approved a settlement requiring Aetna (part of CVS) to pay 4.6 million and its subcontractor Optum (part of UnitedHealth Group) to pay $200,000 to the 87,754 participants in the 1,954 self-insured plans that it administered (1). The two companies were accused of using "dummy codes" to bundle administrative fees with provider charges, thus increasing the total claims cost for employers and outof-pocket expenses for their employees.Several other top insurers were also accused of self-dealing in providing administrative services to selfinsured employer-sponsored health plans. Cigna was sued for intentionally underpaying out-of-network providers (2) and then charging "saving fees" to the plaintiff (3). In separate cases, United Healthcare (4), Elevance (formerly known as Anthem) (5), and Blue Cross Blue Shield of Massachusetts (6) were all sued for making overpayments to providers, resulting in losses to the plaintiffs. United Healthcare (7) was also accused in a separate lawsuit of cross-plan offsetting, i.e., using funds from their self-insured plans to recoup losses incurred in their fully-insured plans.The growing number of cases against health insurers drew attention to the potentially misaligned incentives between insurers that serve as third-party administrators (TPA) of self-insured plans and their employer clients. The U.S. Internal Revenue Service requires the presence of risk shifting and risk distribution to be present if a transaction is to be considered insurance for federal income tax purpose (8). An insurance company's "main job" is thus to offer fully-insured plans for which they bear the underwriting risk of claims cost. Administering self-insured plans is a "side job" that does not involve risk transfer as it is the employer client's responsibility to cover claims.The different risk natures of the two insurance segments may result in differing incentives. In the riskbearing fully insured business segment, insurers have strong incentives to manage the underwriting risk as they are legally obligated to pay claims even when they have insufficient premium income. In the risk-freefoot_0 self-insured business segment, insurers are paid a flat per-member-per-month fee to provide contracted administrative services, including using their employer clients' assets to pay claims (9). Insurers are thus less likely to be as invested in managing the underwriting risk in self-insured plans, which would go against their employer clients' interest in holding down healthcare spending. The overpayment and cross-plan offsetting lawsuits mentioned above provided some anecdotal evidence of the misalignment problem. One report argues that TPA-insurers may also "skimp on costs" (10) or even hide expenses in medical charges as in the Aetna case.Self-insured plans and fully-insured plans are also regulated differently, which may be another factor contributing to the differences in their claims and expense experiences. Fully-insured plans are subjected to state insurance regulation and all of the regulations under the Patient Protection and Affordable Care Act (ACA). Selfinsured plans are exempt from state insurance regulation and are governed at the federal level by the Employee Retirement Income Security Act (ERISA) (11) and some ACA regulations. (12,13).The ACA became law on March 23, 2010 and imposed a plethora of new regulations aimed to improve access to quality care at reasonable cost. One of such regulations is the medical loss ratio (MLR) rule which took effect on January 1, 2011 and is enforced by the Centers for Medicare and Medicaid Services (CMS). The MLR rule mandates that carriers spend at least 80% of their premium dollars on medical claims cost and quality improvement expenses in the individual and small group market (85% in the large group market) (14). If an insurer's MLR falls below the threshold, they must offer rebates to their policyholders.The MLR requirements only apply to fully-insured plans, not self-insured plans. Several studies examined fully-insured plans' strategies to become MLR compliant. Some found that insurers overstated claims to achieve the MLR threshold. A study (15) found that higher medical claims were the primary reason that insurers in the individual and small group markets whose MLRs were far below the 80% threshold reported larger MLR increases from 2010 to 2011. An analysis of insurer data from 2005-2013 ( 16) reported that individual market insurers increased claims cost by seven percent on average to meet the MLR requirements. Another study (17) estimated that approximately 14 percent of insurers engaged in strategic over-estimates to avoid paying rebates. The rebate amount avoided due to overstated claims was approximately $190 million to $325 million for 2011-2013 (18).Besides overstating claims, insurers were also found to meet the MLR rule by way of managing expenses.One study (19) reported that fully-insured plans in the individual market reduced their median administrative cost ratio and operating margin between 2010 and 2011 by more than two percentage points each to arrive at a sevenpercentage-point increase in their median medical loss ratio.Two studies compared fully-insured and self-insured plans. One report (20) found that insurers spent the most quality improvement expenses per member in their government plans and the least on their self-insured members, with commercial insurance spending in between these two extremes. Another study (21) had similar findings that self-insured plans incurred lower per-member quality improvement expenses than fully-insured commercial group plans during the study period 2010-2018. The same study also reported that fully-insured plans increased quality improvement expenses to reach the MLR threshold but it was unclear whether the increase was new investment or reallocation of funds from self-insured plans to fully-insured plans.Given the differing risk natures and applicable regulations in fully-insured plans and self-insured plans, it is important to understand the workings of the self-insured segment in terms of its claims and expense experiences and whether insurers use self-insured plans to cross-subsidize their fully-insured segment (possibly at the expense of their employer clients and plan beneficiaries). To address these questions, we'd need complete claims and expense data from self-insured plans. Insurers though are not required to report claims data for selfinsured plans.Since we only have enrollment and expense data for self-insured plans, we focus our research on examining two things: 1) whether there is any correlation in size between the fully-insured segment and the selfinsured segment. We posit that if insurers intend to cross-subsidize between the two segments, there may be a positive relationship between the segment sizes, given the fact that major TPAs are mostly large health insurers.2) whether there is any difference in expense structure between the two segments. We posit that self-insured plans may spend less on expenses given the anecdotal evidence that some may bundle certain expenses with claims cost and/or skimp on costs to increase net profit.The rest of the article is organized as follows: we give a brief overview of the prevalence of self-insured plans in the next section, followed by presentation of the data source and analysis results. We conclude the article with discussions and policy implications.A majority of people in the U.S. who had health insurance obtained coverage from their or their family members' employers and the latest data available indicated that 53.8% of the insured population were covered by employment-based insurance (also known as group insurance) in 2024 (22). While many employers were already offering health insurance to their employees voluntarily before the ACA became law, the ACA's employer mandate requires all employers with 50 or more full-time employees to offer group insurance beginning in 2015 or pay a per-worker penalty (23). This mandate further makes group insurance a more important issue for employers.There are two financing options for employers. They may purchase fully-insured plans from commercial insurers, paying a fixed per-worker premium to transfer the risk to their insurers. They could also self-insure their workers' medical expenses, paying claims from their general assets or a trust fund. As employers are not insurance experts, they often outsource the management of health plans to TPAs, which could be insurers or non-insurers.Both financing options have advantages and disadvantages. With fully-insured plans, employers do not bear the underwriting risk but lack flexibility in tailoring plans to meet their employees' unique health care needs.Additionally, they have no control over premium levels. A Wall St. Journal article (24) cited the benefits consulting firms Mercer and Willis Towers Watson saying that costs for employer coverage are expected to surge around 6.5% for 2024.Self-insured plans allow employers to design their health plans and invest their premium funds. However, they bear underwriting risk if their workers incur unexpected high claims. The total cost of self-insured plans (including claims cost, administrative expenses, and third-party administrator fees) could be higher than premiums for fully-insured plans.While employers may favor fully insured plans to transfer the underwriting risk, more than fifty percent of U.S. employers self-insure their health plans to save money, maintain control over benefit design, or to lessen the burden of regulations.Table 1, which reports our tabulation of the Kaiser Family Foundation's annual Employer Health Benefits Survey results (25), shows that the enactment of the ACA in 2010 has been followed by a steady increase in the percent of covered workers (with group health insurance) in self-insured plans. The 2020 pandemic further fueled the growth of self-insured plans with people canceling or postponing care. Large firms with 200 or more workers were much more likely to self-insure their health plans than small firms. In 2020, 84% of large firms self-insured their health plans, as opposed to 23% for small firms. The percent of covered workers in self-insured plans decreased slightly post-pandemic (when utilization and claims bounced back to pre-pandemic levels), but still stayed at 63% in 2024 across all firm sizes. The increasing popularity of self-insured plans was followed by a strong demand for TPAs. While there are many non-insurer third-party administrators, many employers still outsource their self-insured health plan management to health insurers. One study finds that self-insured plans made up a large portion of major health insurers' business mix in 2020, with Cigna having 76% of covered lives in self-insured plans, Aetna 59%, and UnitedHealthcare 42% (10).Mark Farrah Associates (MFA), a leading data aggregator and publisher, reported that self-insured enrollment has been increasing steadily over time, reaching 133.3 million in 2025 (26). It also found that in 2021 Elevance Health; Health Care Service Corporation (HCSC); Highmark, and Blue Cross Blue Shield of Michigan (BCBS of MI) all collected over $1 billion in income from fees of self-insured plans.While the prevalence of self-insured plans has been reported, there is limited research about the selfinsured segment, especially in its relation to its fully-insured counterpart. This study fills in the gap in literature and offers new insights into the self-insured segment.We use the CMS Medical Loss Ratio Data and System Resources public use files ("MLR data") from 2011 to 2023 (27) to examine health insurers' "main job" (underwriting insurance policies) and "side job" (administering self-insured plans).The MLR data are based on the Supplemental Health Care Exhibit (SHCE), part of health insurers' statutory filings. The SHCE was developed by the National Association of Insurance Commissioners (NAIC) to monitor health insurers' compliance with the MLR rule. The NAIC data containing the SHCE is proprietary. The MLR data is publicly available and looks slightly different from the SHCE. For instance, fees from self-insured plans are reported in line 6 of part 1 in the 2023 MLR data forms (28) but in line 12 of part 1 in the 2023 SHCE data (29). Another example is that the SCHE directly reports underwriting gain (in line 12) but the MLR form does not.The MLR data tracks components used to calculate the MLR and rebates (if any) and contain several parts (28). For fully-insured plans, insurers are required to report information on premiums, claims, and expenses by lines of insurance.Self-insured plans are termed uninsured plans in insurers' statutory filings. The CMS defines "uninsured plans" as those "for which a reporting entity, as an administrator, performs administrative services such as claims processing for an employer that is at risk, and accordingly, the administrator has not issued an insurance policy." (30) Since insurers bear no underwriting risk for administering self-insured plans, premiums received and claims paid on behalf of such plans are not reported as premiums or claims for the insurers. They, however, are required to report to CMS fees earned and expenses incurred from managing self-insured plans, as well as other pertinent information such as the number of lives and member months covered in self-insured plans.The 2011-2023 MLR data included 893 distinct insurers. We conduct our analysis at the firm-year level.We first examine whether there is any correlation between the sizes of fully-insured and self-insured plans and then analyze the two segments' expense structures. Fully-insured plans include all lines of insurance reported, including comprehensive individual market, comprehensive small group market, commercial large group, minimed individual market, mini-med small group market, mini-med large group market, expatriate small group market, expatriate large group market, student health plans, government program plans, and other health insurance.While the mandatory MLR reports were authoritative, there are a few limitations. 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The MLR data used in the study does not contain the information of insurers as their assets and publicly available data also in the study of the self-insured segment

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