The Threat of Self-Insured Small Businesses to People of Color
Despite the Affordable Care Act’s, or ACA, sweeping reforms, which are making health care more accessible and bringing Americans greater protections and increased benefits, people of color may still be at risk of facing the problems that plagued the system before. Under the ACA, millions of Americans have already gained coverage and protections that they did not have previously, saving many from some of the hardships of illness or injury. Unfortunately, employees of small businesses—particularly minority employees—may not enjoy the positive changes that the ACA is bringing to the country. Evidence shows that small-business employers may be considering a practice called self-insurance, which could jeopardize the quality, affordability, and accessibility of health care for employees of color.
When offering health care plans to their employees, employers can choose to fully insure or self-insure, meaning that the business either buys health insurance from a traditional provider or the business itself acts as the insurer. When employers buy insurance from a traditional insurer, the insurer takes on the financial risk of employees accumulating more in health care costs than what they pay into the plan. In a self-insured structure, that financial risk is put on the business, but the business does not have to pay premiums to a traditional insurer; during times when employees are healthy and pay more into the plan than they take out, the business—not an outside insurer—gets to keep those savings. This can make a self-insured plan appealing to a small business, especially if it has a young or generally healthy staff. But self-insured plans can have negative consequences for employees, especially those of color.
Minority employees have long been at the losing end of the health care system. Compared to the uninsured rate for whites of 11.4 percent, people of color are uninsured at higher rates, with 21 percent of African Americans, 32 percent of Hispanics, and 17 percent of Asian Americans uninsured the year before the ACA was passed. Furthermore, there are 5.1 million people of color who work for small businesses and are still uninsured. For those who are insured, their benefits and protections are at risk of being diminished if small businesses choose to self-insure, as self-insured plans are not subject to several of the ACA’s reforms. Employees will not be guaranteed the minimum package of essential benefits, including coverage for emergency services, maternity care, mental health, and prescription drugs. They will also not be protected from refusal to renew coverage based on past usage or health status. All of this means that small businesses that are trying to cut costs will be able to shirk employees on health care.
To further cut costs and shrink financial risk, small businesses that choose to self-insure can also purchase stop-loss policies. Stop-loss insurance protects employers from unpredictable or catastrophic claims by setting “attachment points”—effectively a cost ceiling for the employees as a whole or an individual employee—for which the stop-loss agency will pay for any costs exceeding that attachment point. For example, If an employer purchases a stop-loss policy for a specific employee with an attachment point of $5,000 and that employee collects more than $5,000 in health care bills, the stop-loss policy will kick in and cover the additional costs. Unfortunately for the employees—particularly those of color—the ACA doesn’t regulate stop-loss policies, posing even more worrisome issues.
Under stop-loss policies, it is often possible to raise premiums or refuse to renew coverage for all employees or individuals based on declining health status, age, and predicted or preexisting conditions. They also participate in “lasering,” a practice that targets specific employees who have higher health costs or risks. African Americans—who are 40 percent more likely than whites to have hypertension and therefore more likely to need prescription drug heart treatment—are not only less likely to receive the prescription-drug coverage they need under a self-insured plan, but are also at risk of being targeted by a stop-loss policy and losing coverage entirely. Additionally, Hispanics have higher rates of end-stage renal disease and cervical cancer compared to their white counterparts, and Asian Americans suffer disproportionately from certain kinds of cancer, making these minorities perfect targets for the unregulated stop-loss policies. This leaves the 10.2 million minorities who work for small businesses vulnerable to higher premiums, more out-of-pocket costs, less coverage, and fewer consumer protections.
Fortunately, this dangerous trend can be prevented without congressional legislation. The solutions are simple: Health and Human Services Secretary Kathleen Sebelius, whose federal rulemaking authority includes the ability to set minimum standards for states, could broaden certain insurer definitions so that both stop-loss policies and self-insurance are subject to the reforms of the Affordable Care Act. Alternatively, states that do not already regulate stop-loss policies can prohibit their sale to small businesses, set minimum attachment points, or regulate these policies the same way as small-group health insurance. These changes would protect workers of color from annual or lifetime limits and ensure essential health benefits and preventive services at no cost. With all that is at stake for Americans—especially those of color—these changes should be enacted without delay.
Andrea-Gale Okoro is an intern at the Center for American Progress. Emily Oshima Lee is a policy analyst with the health policy team at the Center.
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Emily Oshima Lee
Senior Policy Analyst