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Study: States Lag On Tracking Potential Obamacare Loophole

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.”