Does Limiting Allowable Rating Variation in the Small Group Health Insurance Market Affect Employer Self-Insurance?

Abstract

The Affordable Care Act (ACA) imposes adjusted community rating in the small group market, which employers can avoid by self-insuring, raising concerns about adverse selection. We evaluate the impact of limiting allowable rating variation on employer self-insurance across industries with varied health risk, using cross-state variation in pre-ACA rating regulations, the nationally-representative 2008-2013 KFF/HRET Employer Health Benefits survey, and a triple-difference regression approach. We find that lower-risk employers subject to laws limiting allowable premium rating variation have a predicted probability of self-insurance that is about 18 percentage points higher than otherwise-similar higher-risk employers, suggesting that these selection concerns are warranted.