The Patient Protection and Affordable Care Act (ACA) lets some small businesses avoid buying employee health insurance. Despite that, a new study from the RAND Corp., said few will qualify. Starting in 2014, the ACA mandates that the majority of companies provide health insurance for employees or pay to participate in health insurance exchanges. Companies with fewer than 100 employees can retain their previous policies under a grandfather clause or they have the option to self insure. The goal, RAND notes, is to spread the financial risk of covering sick or high-cost enrollees across a wider pool of employers.
In 2014, insurance companies will be allowed to set premiums based on enrollees’ age, family size, where they live or tobacco use. They won’t be allowed to consider enrollees’ gender, overall health or pre-existing conditions. “Concerns have arisen that such cost sharing could be undermined if small employers with relatively healthy workers and dependents avoid the new regulations by self-insuring or by maintaining grandfathered health insurance plans,” according to RAND. “Should such a trend develop…premiums offered to all businesses that remain in the exchanges could become unaffordable.” RAND’s study came to the conclusion that most small employers will opt not to self-insure because of the potential liability and financial risk in case medical expenses rise unexpectedly. “The self-insure option will reduce enrollment in the small-business insurance exchanges somewhat but it will not have a substantial impact on exchange premiums,” the RAND study said.
“We found that keeping the rules as they are written, particularly the limitations on maintaining a grandfathered plan, will be essential to keeping premiums affordable in small business insurance exchanges,” said Christine Eibner, RAND senior economist and the study’s lead author. Under the terms of the ACA’s Small Business Health Options Program, or SHOP, the exchanges for individuals have targeted their opening date for January 1, 2014.
The need for SHOP exchanges is very real. Small businesses tend to struggle to pay for health insurance for their employees, and they have much less bargaining power with insurers than big business. According to Timothy Jost of the Washington and Lee University law school, to succeed, the SHOP exchanges will have to provide small employers with an attractive alternative to the options currently available; keep costs affordable; regulate the insurance burden; administer the program; manage enrollment periods; and protect against poor selection, which would lead to a top-heavy number of sicker individuals in the exchanges.
It is estimated that the ACA’s state health insurance exchanges for small businesses will cover nearly 10 million employees, in addition to the 15.3 million individuals who gain coverage through the individual exchanges when the law is fully implemented. According to Fredric Blavin and colleagues at The Urban Institute and The Commonwealth Fund, SHOP has the potential to provide affordable insurance for small employers who face high premiums and administrative costs.
The reform law grants states considerable flexibility in designing their exchanges, such as allowing them to combine their small business and individual exchanges, limiting enrollment to companies with 50 or fewer employees or opening to firms of up to 100 employees through 2015, or reducing the ability of insurers in the exchange to charge premiums on the basis of age beyond what the law allows. When they examined all options, the researchers found that merging the small business and individual market exchanges would bring two million additional people into the exchanges, for a total of nearly 27 million. This would reduce premiums by an average of $600 per person every year, and would cut federal spending on premium subsidies by $4 billion. Few of the other options significantly impacted coverage or costs. The authors conclude that “these results suggest that states can make these design choices based on local support and preferences without fear of dramatic repercussions for overall coverage and cost outcomes.
“SHOP exchanges have the potential to transform the experience of small businesses and their employees when shopping for and administering health insurance,” said Sara Collins, vice president for Affordable Health Insurance at The Commonwealth Fund.