Saving Small Employer Health Insurance

Abstract

Health care reform devotes substantial attention to resuscitating the small group health insurance markets that serve employers with fewer than fifty full time employees. Unfortunately, a number of interweaving provisions embedded within the Affordable Care Act create strong incentives that, starting in 2014, will tend to undermine this market and, in the process, increase the fiscal cost of reform. First, small employers with predominantly low-income employees will tend to opt out of the small group market. Second, small employers with mixed-income employees will have strong incentives to offer coverage that is neither technically “affordable” or of “minimum value” in order to preserve the availability of premium and cost-sharing subsidies on the individual market for their low-income employees. Third, small employers with unusually low-risk employees will have strong incentives to self-insure any group plan they do offer in order to avoid cross-subsidizing higher-risk groups. Analyzing these risks collectively, this Article offers a number of recommendations for saving the small group market. For instance, it argues that the SHOP exchanges that are intended to organize the small group market in 2014 must strategically target the weaknesses of self-insurance by offering simple and risk-free coverage options that facilitate employee choice. They must also market this coverage aggressively in light of insurance brokers’ likely financial incentives to push self-insurance on small employers. Additionally, state and federal law makers should explore various possibilities for making small employers both more likely to offer group coverage and, if they do offer group coverage, to do so through SHOP exchanges rather than self-insured plans. Possibilities explored by this Article include amending the terms of the premium and small business tax credits, regulating stop-loss insurance, and imposing various restrictions or penalties that are aimed at preventing churning between the self-insured and small group markets.