Starting in 2014, health insurance premiums for employees of small businesses (i.e., those with 100 or fewer workers) can vary only by age and tobacco use, with limits on the degree of variation permitted. However, small businesses can avoid many of the Affordable Care Act's new regulations by self-insuring or by maintaining grandfathered plans. Given current regulations, few firms will be able to offer grandfathered policies by 2016, but the option to self-insure will be available to all firms. In this Commonwealth Fund–supported study, researchers at the RAND Corporation simulated the effects of the new regulations, given these potential exceptions.
Drawing on survey data from three sources, the authors sought to predict the behavior of individuals, families, and firms in 2016 under four different scenarios: 1) the Affordable Care Act does not take effect; 2) the law is fully implemented; 3) there is no erosion in the number of grandfathered plans (i.e., those in place before March 23, 2010); and 4) small firms are prevented from offering self-insured policies. The authors' model finds that, with the Affordable Care Act's policies in place, the number of small employers offering coverage would increase from 62 percent to 68 percent, with the increase driven by the individual mandate, coupled with the preferential tax treatment of employer-sponsored coverage. In the grandfathering scenario, the share of small businesses offering coverage increases to 69 percent. Removing the option to self-insure causes small-employer offer rates to fall slightly, to 66 percent.
These changes, however, would have little effect on the overall number of people with insurance coverage. The coverage rate for nonelderly individuals is approximately 91 percent in all three scenarios that include the Affordable Care Act. "The stability of these results reflects the fact that with the Affordable Care Act, people have multiple options for obtaining health insurance, and the individual mandate gives them incentives to obtain coverage," the authors say.
The authors conclude that federal regulators acted prudently by restricting employers' ability to offer grandfathered plans while maintaining their option to self-insure. The current policy "strikes a good balance between mitigating adverse selection and achieving high insurance enrollment," the authors conclude.