Self-Insurance by Small Employers Under the ACA

I tell my health law students that the role of self-insurance in employer-sponsored health insurance is a riddle wrapped in a mystery inside an enigma.  By this, I mean that the explosive growth in self-insurance by employer sponsored health insurance plans is an under-discussed phenomenon.

Today, the New York Times took it on.

First, the NYT explains that an estimated 59% of private sector workers with health coverage are enrolled in self-insured plans (up from 41% in 1998).  Always popular with the very largest employers, the growth of self-insurance for small to mid-size employers is tremendously important for those trying to understand the role of state health insurance regulation. Self-insured plans, in short, are exempt from much state health insurance regulation.

Second, explaining that the exemption of self-insured plan from state health insurance regulation is not premised on any genuine absence from all  insurance markets, the article explains about self-insured plans' participation in the stop-loss insurance market.  Stop-loss is secondary insurance and designed to protect against some of the risks of self-insurance.

Finally, explaining the transformation of the stop-loss health insurance market as small to mid-size employers flood the market seeking cost savings from ACA-initiated additional insurance regulation, the NYT connects the dots. The stop-loss market responds by cherry picking among the new refugees on the basis of — you guessed it — health status of the employee group, reintroducing underwriting by small group to places where it had been eliminated for individuals by the Affordable Care Act. 

The moral of the story? Wherever and whenever we have competing insurance products whose profitability is determined  by calculating every health care payout as a loss, the insurance markets will respond accordingly — ever inventing more methods, even if once or twice removed, to screen those who need health insurance out of the health insurance marketplace.  

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