Op-Ed: Texas Employers Are Paying Too Much for Health Care — Many Don’t Have To

By Michael W. Ferguson

Across Texas, employers are reeling from rising health insurance costs. Many are running out of room to absorb them.

Eighty-five percent say the current trajectory is unsustainable. More than half already report an adverse effect on their ability to raise wages or hire. For small and mid-sized firms in particular, tradeoffs are becoming unavoidable.

Employees are feeling the strain, too. Larger payroll deductions for premiums and mounting out-of-pocket costs are squeezing families’ budgets. Employer-sponsored coverage now consumes over one-quarter of a typical Texas household’s income.

Despite all this spending, the system isn’t delivering commensurate value. Texas ranks near the bottom of the nation for overall health system performance. Employers and employees alike are paying more and more without benefitting from better care or improved outcomes.

Fortunately, there is an alternative coverage model — one that avoids the high-cost, low-value traps of the traditional market. And that’s self-insurance.

Under a self-insured model, employers take on direct responsibility for their employees’ health costs, paying claims themselves rather than buying a fully insured plan for their workers.

Employers typically partner with experienced administrators to assemble provider networks, field questions from beneficiaries, and process claims. To manage risk, they generally purchase “stop-loss” coverage to cap their exposure to unexpectedly high claims costs.

Historically, self-insurance has been popular among large employers with significant beneficiary populations. The law of large numbers can make it easier for mega-firms to predict annual health costs — and plan accordingly.

But self-insurance is also growing popular among smaller firms. One-third of midsized firms and one-sixth of small businesses now offer one or more self-insured plans. Nationwide, over two-thirds of covered employees are enrolled in one.

The appeal of self-insurance lies in the visibility and flexibility it can offer employers. With traditional plans, employers send premiums to insurers and receive little insight into how those dollars are spent.

Self-insured employers, by contrast, can see exactly where their healthcare dollars are going — and act on that information. They can identify inefficiencies that would otherwise remain hidden and design smarter benefits programs that are more useful for their employees.

For example, if claims data show that employees are opting for high-cost brand-name drugs when lower-cost generic alternatives would be just as effective, then employers can steer their beneficiaries to those lower-cost options with tactics like lower copays.

Or if data reveal that imaging services like MRIs cost significantly more in hospital outpatient settings than in independent facilities, employers can waive cost-sharing at lower-cost sites of care. Such a move can save the plan money — and reduce out-of-pocket costs for employees.

And if employers see that employees with chronic conditions are not picking up their medicines because of cost, they can intervene early with targeted health coaching or home-delivery programs. Such efforts to improve medication adherence can prevent complications that are far more expensive down the line.

These are practical, data-driven changes that may not be feasible under traditional insurance arrangements, where employers get a bill but little actionable insight into how they can foster a healthier, more productive workforce.

Studies consistently find that self-insured employers save up to 10% on healthcare benefits compared to companies with traditional insurance while providing comparable or better coverage for their employees.

Particularly in a state where health premiums rose 6% from 2024 to 2025, finding ways to lower spending without cutting benefits is critical for the health of millions of people.

Rising costs have forced many Texans to make difficult decisions about their care.

Roughly 35% of Texans report skipping doses of prescribed medication to make refills last longer. More than four in 10 have foregone treatment — including lab tests and medical procedures — due to affordability concerns. For the one in 10 Texas adults managing three or more chronic conditions, such cost-driven rationing can quickly lead to serious health complications.

But with more data and greater flexibility at their disposal, self-insured employers can intervene before problems like these escalate.

Right now, too many Texans are paying into a system that rewards higher prices instead of better outcomes. Self-insurance offers employers a way to change that — to reduce waste, improve outcomes, and bring costs under control.

In a state as economically dynamic as Texas, that kind of control isn’t optional. It’s essential.

Michael W. Ferguson is president and CEO of the Self-Insurance Institute of America (siia.org).