Washington, D.C. — A move by small businesses toward self-insurance schemes could undermine the reforms of the Affordable Care Act and offer fewer protections for workers, according to a new report released today by the Center for American Progress. The report details the risks posed when small employers self-insure, and outlines policy options to discourage this behavior, focusing specifically on possible federal administrative strategies.
“The Affordable Care Act helps small businesses access quality health care for their employees by offering tax credits to small businesses and allowing these employers to pool their buying power in the new marketplaces. But if small businesses opt out of the marketplaces and self-insure, they will not only undermine new protections for small-business employees, but they will also increase costs for other small businesses,” said Maura Calsyn, co-author of the report and Associate Director of Health Policy at the Center for American Progress. “Self-funding is a risky proposition for small businesses, and the risks far outweigh any potential rewards. Regulatory action is critical to protecting these employers, their employees, and the small group market.”
The Patient Protection and Affordable Care Act, or ACA, makes sweeping changes to much of the private-insurance market in an effort to guarantee that all Americans have access to high-quality health insurance. But the law has a much smaller impact on employers that choose to self-insure—meaning the employer functions as an insurer and bears the risk of employees’ health care costs—as an alternative to purchasing health-insurance coverage from insurance companies for their employees. The Affordable Care Act exempts these plans from many of its reforms, creating an incentive for employers looking to avoid complying with the law’s consumer protections to follow this path.
As a result, although self-insuring poses a greater financial risk for employers, even small businesses that have not traditionally offered self-insured plans are now considering this approach, especially if their employees are healthy and relatively low-cost to insure. This shift in the small-employer insurance market, however, would undermine key protections for small-business employees and increase costs for other small businesses that stay in the traditional-insurance market. The result of this shift could cause an insurance premium death spiral and threaten the stability of the exchanges—the health care law’s new insurance marketplaces.
Maura Calsyn and Emily Oshima Lee, authors of the report, explain that this outcome is not inevitable. There are a number of options available to federal policymakers that can reduce or eliminate this risk. Because these changes require only regulatory action, policymakers can ensure that more Americans benefit from the Affordable Care Act’s protections without delay.
Read the report: The Threat of Self-Insured Plans Among Small Businesses by Maura Calsyn and Emily Oshima Lee
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