Health Care In The States

Study: States Lag On Tracking Potential Obamacare Loophole

By Jay Hancock

April 8th, 2013, 3:38 PM

What if there were a way for even small employers to escape some Affordable Care Act rules blamed for driving up costs? Some see self-insurance for medical care, which is exempt from the law’s taxes, benefit rules and price restrictions taking effect next year, as just such an opportunity.

Self-insured firms finance most worker health costs and buy “stop-loss” reinsurance to cover especially high claims. Self-insurance has typically been the realm of large employers. But Kaiser Health News has reported brisk interest by small companies exploring self coverage. Stop-loss coverage that kicks in as low as $10,000 or $20,000 per worker makes self-insurance an option for firms with as few as 20 or 30 on staff, brokers say. Yet advocates of the law worry that more small firms with young, healthy employees will self-insure next year, exploiting what some see as an ACA loophole and leaving small-group insurance pools with sicker members and higher costs.

Regulators have little information about what’s going on, says a new study from the Robert Wood Johnson Foundation and the Urban Institute. If self-insurance takes off among small companies, the information gap could make states slow to react to keep their small-group markets viable.

“That raises an important flag,” said Kevin Lucia, a research professor at Georgetown University’s Health Policy Institute and the report’s lead author. “If you aren’t monitoring and don’t see it happen, how do you catch it and make a decision on what kind of market you want in your state?”

In interviews with dozens of brokers, insurers, regulators and employers, the authors found concern about small employers potentially switching to self insurance. But there was “less unanimity … regarding the likelihood of self-funding by small employers increasing on a wide scale,” they found.

In some circumstances, self-insurance by small businesses with younger employees could cause premiums in the small-group insurance market to rise by 25 percent, according to previous research from the Commonwealth Fund and the Urban Institute.

States are prohibited by federal law from regulating self-insured medical plans, meaning they lack good data. Meanwhile the federal government doesn’t collect information on stop-loss policies, which pay off when claims surpass thresholds known as “attachment points.” The report’s conclusion: “At a minimum, state departments of insurance could collect data on the number of small employers self-funding, the number of small employers purchasing stop-loss insurance, and the attachment points of policies sold to small groups.”

4 Responses to “Study: States Lag On Tracking Potential Obamacare Loophole”

  1. Mark Meade says:

    While it is reasonable to collect information on population health, the idea that self-funding will destabilize the health insurance market is a fallacy, and only true if the so called market wasn’t a market at all but an effort at nationalization of health care by stealth. The fact that younger people may balk at the requirements to subsidize the older population should be a warning sign that the current system of “sharing” may be in trouble and that the younger generation may soon tire of having their future mortgaged to pay for others. It would appear that we, the collective we, have learned little form the failures of such systems all around us, the collapse of which leads to chaos and devastating results. So accept a health care market where the government sponsored programs must compete for clients and be efficient or the other, a path to eventual disaster. Those unwilling to learn from history are doomed to repeat it.
    PS I’m a true believer in Health Care reform but one that is based on addressing Cost, Quality and Access, in that order which the current version is not.

  2. Craig says:

    Why is it a crime to meet your ACA obligations with legal means of financing the health plan? What if a company decided to offer the MV/MEC/EHB on their own? Are we saying that not only can the Federal government compel you to enter into a private contract, but also that you must only do it with a certain company – of which there are about 3-4 in each small group market. Self -funding is not cheating. If it makes sense for the company they should use the company demographics, good health and choices as competitive advantages. Do other companies pick the most expensive health insurance option to make sure the financials of the market are balanced? No , they pick the most affordable option.This is a very perverse perspective. Especially when doing this still costs more than the $2,000 for fine doing nothing.

  3. Chris Koller says:

    Au contraire.
    Health insurance, like many other collective activities, only works when people agree to play by the same set of rules. (in this case, rules for pricing and minimal benefits). When some people seek to exempt themselves from the rules, for what ever reason – they pay more, they want to escape benefit mandates, they are sore losers, they like their choices better – the activity breaks down. The solution is in having whatever rules are established apply to all. Works for traffic laws and for health insurance.

    There is second risk – literally. Smaller employers may not be well informed about the limits of the stop loss insurance they buy to limit their risk. Stop loss policies are often subject to looser statutes, poorly regulated and enforced, putting small employers at risk for lousy coverage and financial losses. Caveat emptor often holds only until one get “pre-emptored” by poor coverage or catastrophic losses.

  4. Larry Verburg says:

    Why is selfishness considered a virtue these days? Apparently few people will take the moral high ground when it comes to health insurance or government programs. I agree with Chris Koller that most programs will only work “when people agree to play by the same set of rules.” That’s why the individual mandate was so crucial to the success of the ACA. We should expect everyone, not just our young people, to play fair when it comes to health insurance. We should accept nothing less. Some people will always attempt to abuse any social system for their own personal gain, whether it is welfare or government-mandated insurance. Should we do away with a system or program because there is abuse? Or should we rather spend some time and effort on perfecting that system and getting rid of the rats that infest it? Calling the Obama Administration’s health insurance initiative “communistic” as some do is fatuous and absurd. If that were true, then all “social” programs, from social security to education, would be “communistic,” and that’s just not the case. Such a mindset would see the insurance industry itself (health, home, life, fire, etc.) as communistic: many people placing money into a communal pot, and when and if they need it, individuals drawing upon the balance. Well, of course the idea of the insurance company (even those so called non-profits) is to make money, so the amount individuals can collect varies a great deal, as do their premiums when they place a claim. No, it’s not communistic or even socialistic; we’re talking about a free market economy, after all. How is receiving benefits from a program like Medicare that you’ve paid into all of your working life an “entitlement”? Is it better for the government to collect tax monies and administer such programs, or should we all stand in line in front of churches and charities like beggars seeking a handout?

    But what really counts is the legacy we leave our children and their children. At some point in history, future generations will wonder why there was so much controversy surrounding a very simple concept: the idea of providing for each person the opportunity to obtain quality health care at a reasonable cost. Why all the partisan bickering and bad faith? Does a great nation neglect its sick and old? Does it stand idly by while families are reduced to the ultimate humiliation of bankruptcy when their medical bills become intolerable? Or perhaps we should just let people die in the streets? Instead of limitless potential and infinite promise and opportunity, shall we leave our children a shattered legacy? That cracked tune that “it’s only business” hides a multitude of bad faith and very real evils. We have the opportunity to prove to ourselves and the world that America is a caring, forward-thinking nation; let us not squander that chance.