The Risk of Unregulated Reinsurance to the Small-Group Market
<p>The Affordable Care Act contains a number of reforms that, beginning in 2014, should help improve the quality of health insurance coverage, spread risks more broadly, and stabilize premiums in the small-group market. The effectiveness of these reforms will in part depend on the broad participation of firms in this market.</p><p>In a new Commonwealth Fund <a href="/publications/issue-briefs/2012/nov/small-firm-self-insurance-under-affordable-care-act">issue brief</a>, the Urban Institute's Matthew Buettgens and Linda J. Blumberg examine the potential that low-risk reinsurance or "stop-loss" policies—which employers that self-insure purchase to avoid being on the hook for unexpectedly large claims costs—might reduce participation in the fully insured small-group market and increase premiums. Based on their simulations of small firms' decisions on health insurance coverage under the Affordable Care Act, the researchers find that the average single premium would be up to 25 percent higher if stop-loss insurance with no additional risk to employers than fully insuring is allowed—an option currently available in most states. </p>
<p>While the Affordable Care Act's changes to the small-group insurance market, including modified community rating, new essential benefits standards, a ban on preexisting condition exclusions, and increased standardization of cost-sharing burdens, will be introduced nationally across the fully insured small-group market, they do not apply to self-insured group plans, regardless of firm size. By regulating stop-loss coverage at the federal or state level, the authors say, lawmakers can prevent adverse selection and stabilize premium costs in the small-group market. <br />
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Visit <a href="/publications/issue-briefs/2012/nov/small-firm-self-insurance-under-affordable-care-act">commonwealthfund.org</a> to read more about this important issue and recommendations for addressing it. </p>