Small Firm Self-Insurance Under the Affordable Care Act

November 28, 2012 | Volume 30

Authors: Matthew Buettgens and Linda J. Blumberg, The Urban Institute
Contact: Matthew Buettgens, Ph.D., Senior Research Associate, Health Policy Center, The Urban Institute, mbuettgens@urban.org
Editor: Deborah Lorber

Downloads

Overview

The Affordable Care Act changes the small-group insurance market substantially beginning in 2014, but most changes do not apply to self-insured plans. This exemption provides an opening for small employers with healthier workers to avoid broader sharing of health care risk, isolating higher-cost groups in the fully insured market. Private stop-loss or reinsurance plans can mediate the risk of self-insurance for small employers, facilitating the decision to self-insure. We simulate small-employer coverage decisions under the law and find that low-risk stop-loss policies lead to higher premiums in the fully insured small-group market. Average single premiums would be up to 25 percent higher, if stop-loss insurance with no additional risk to employers than fully insuring is allowed—an option available in most states absent further government action. Regulation of stop-loss at the federal or state level can, however, prevent such adverse selection and increase stability in small-group insurance coverage.

Citation

M. Buettgens and L. J. Blumberg, Small Firm Self-Insurance Under the Affordable Care Act, The Commonwealth Fund, November 2012.