Small employers lacking bargaining power with insurers have in recent years fled the small group health insurance market to escape rising premium costs by opting to self insure their workforces’ medical costs. That trend is colliding with Affordable Care Act reforms designed to make small group coverage more accessible and affordable, in turn reducing the number of medically uninsured small business employees. The two primary ACA reforms aimed at boosting the health and viability of the small group market: 1)Mandating insurers underwrite all small employers as a single risk pool and; 2) Requiring states to create separate small business marketplaces within their health benefit exchange marketplaces in order to aggregate small employers’ purchasing power.
Insurance market reforms such as these won’t be as effective if small employers don’t participate in the small group insurance market. Less participation reduces the size of the small group pool — and potentially the ability of the Small Business Health Options Program (SHOP) in state exchanges to concentrate sizable numbers of small employers to drive a better deal with insurers on premium rates.
There’s another even more worrisome risk facing policymakers as this Businessweek article points out. Small employers playing in both the insurance and self-insured markets and moving in and out of each depending on the health status and claims experience of their employees. Doing so would provide them a means to create adverse selection against the insurance market by opting to insure when their medical claims costs rise and self insuring when claims costs are low.
State policymakers are addressing this concern by making self insurance a less palatable option for small employers based on model law adopted by the National Association of Insurance Commissioners limiting the use of stop loss coverage that covers self insured employers once medical costs reach a specified amount such as the Colorado measure mentioned in the Businessweek story and SB 161 pending before the California Legislature.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email