Small Employer Perspectives On The Affordable Care Act’s Premiums, SHOP Exchanges, And Self-Insurance
By Jon R. Gabel, Heidi Whitmore, Jeremy Pickreign, Jennifer L. Satorius and Sam Stromberg
Health Affairs, October 2013
As of October 1, 2013, companies with fifty or fewer full-time-equivalent employees began signing up for insurance coverage through the SHOP exchange in their state.
SHOP exchanges are electronic marketplaces where company managers can obtain information on each qualified health plan sold in the exchange — including its benefits, premiums, networks, and actuarial value — and sign their company up for the plan of their choice.
Appeal Of Selected SHOP Features
We asked small employers that offered coverage about their interest in a number of features that the SHOP exchanges will have and about various scenarios that could occur if they used a SHOP exchange.
Fifty-six percent of respondents said that they were more interested in “offering workers a choice of plans, with the employer paying a fixed amount, and the employee paying any extra cost for choosing a more expensive plan” (the “employee model”) than in “offering workers one plan with less administrative work for your firm” (the “employer model”).
Small employers showed an interest in narrow-network plans, if using such plans would reduce costs. The survey defined narrow-network plans as those contracting with 25 percent of the doctors and hospitals in the community. If using a narrow network instead of a broad network — one with 80 percent of the doctors and hospitals in the community — would lower premiums by 5 percent, 57 percent of the respondents said they would opt for the narrow network. If the premiums were 10 percent lower, 77 percent would choose the narrow network, and with 20 percent lower premiums, 82 percent would do so.
Self-Insurance
An unintended consequence of the Affordable Care Act is that it may make self-insurance attractive for small firms.
The major drawback to self-insuring has been the financial risk of having a covered person experience a catastrophic illness or injury, and the subsequent substantial increase in the cost for stop-loss coverage that would ensue. Stop-loss coverage is a form of reinsurance that limits the amount of money that employers must pay out for a claim or group of claims.
But self-insurance may become more attractive as the Affordable Care Act takes effect. Because the act eliminates medical underwriting, if one or more insured workers or dependents at a small firm were to incur catastrophic costs in a given year, the next year the firm could move into the fully insured community-rated market on or off the SHOP exchange.
Among firms whose brokers had discussed self-insuring, or firms not using brokers but considering self-insuring, 9 percent said they were “very likely” to self-insure, and 14 percent were “somewhat likely.”
From the Discussion
One clear message from employers is that the cost of coverage is by far the most important factor in their purchasing decisions. The majority of employers not offering coverage identified price points (the highest premium amount they would consider) that were substantially lower than prices in the current market.
Small employers showed strong preferences for the “employee model” over the “employer model,” even if the former involved higher administrative expenses than the latter. As noted above, seventeen of the eighteen state-based SHOP exchanges have chosen the employee model. However, federally run exchanges will not offer that model until 2015.
From the Conclusion
The survey quantified a much-discussed unintended consequence of the Affordable Care Act: a movement to self-insurance, which poses a threat not just to SHOP exchanges but to the entire small-group market. Under the act, self-insured firms do not have the same plan design requirements as fully insured firms. For example, self-insured plans do not have to meet essential benefit requirements of their state. Consequently, some brokers have suggested to small employers that they self-insure and purchase stop-loss coverage at attachment points as low as $10,000. (Attachment points are the dollar amount where stop-loss insurance begins paying for medical expenses.)
Moreover, should a small firm self-insure and incur catastrophic costs, instead of facing prohibitive stop-loss premiums the following year, it could simply move into the fully insured market through a SHOP exchange, where premiums are community rated (with adjustments for age of the workforce and geographic location).
After a few years of converting to self-insurance, the small-group market could reach a tipping point that would leave the fully insured markets with greater risks, higher premiums, and eventually a so-called death spiral — in which costs become prohibitive for most people, so few people enroll except the sick, making per enrollee costs even higher.
http://content.healthaffairs.org/content/early/2013/10/15/hlthaff.2013.0861.abstract
Comment:
By Don McCanne, M.D. Small Business Health Options Program (SHOP) exchanges were created by the Affordable Care Act to provide small businesses with an assured source of affordable health insurance for their employees. This study suggests the likely response of employers to these SHOP exchanges, and it appears that they are more interested in taking care of themselves rather than their employees. The cost of coverage is by far the most important factor in their purchasing decisions. The following three examples will show us where the hearts of employers lie. Employers express a preference for providing a fixed sum (defined contribution) to the employees and allow them to choose plans as long as they pay the full difference in premiums for plans that are less spartan in their benefits. This not only shifts more health care costs to the employees, but it also allows the employer to saddle their employees with future increases in health care costs. Employers are also quite willing to take away employees’ choices of their health care professionals and hospitals by using narrow-network plans that exclude three-fourths of the health care providers in the community, as long as the employers receive discounts on their premiums. Employers are now also showing considerable interest in self-insuring outside of the SHOP plans – providing as little as $10,000 in coverage while purchasing stop-loss insurance for amounts above that. The risk to the employer is that one serious medical problem in an employee or family member could cause a sharp increase in stop-loss premiums. If that were to occur, the employer under ACA now has the out of dumping his employees into a SHOP plan. If enough employers did this (which it seems like many will), then the SHOP plans would concentrate high-cost individuals, driving premiums sky high – the “death spiral” of adverse selection. Small business employers are not mean. They’re businessmen. Employee health benefit costs are almost intolerable for many of them simply because our health care costs are so high. Under our current method of financing health care – the infrastructure of which was left in place by ACA – where are employers to turn? When the industry offers them insurance innovations that address their costs, even if tainted, how could they turn them down? The smart move would be to jump at the chance to eliminate any responsibility of providing health benefits by supporting replacement of our current financing system with an improved Medicare that covered everyone – a single payer national health program. And they are smart. They just need to be better informed on this vastly superi or alternative.
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