In the recent years many small employers have tried to reduce their health care costs with self insured plans.
They don't buy policies from big insurers like Aetna or WellPoint, the company sets aside money and pays workers claims directly. The big companies stick to conventional methods of insurance as a large number of claims makes the health care costs very predictable.
AdvertisementA progressive Washington advocacy group - Center for American Progress, in a new report said that small companies can be at risk when and if they face a single large bill for an unexpected injury or illness.
The health reform will not be able to cover such people with minimum coverage; self insurance can only save money when their workers are healthy.
As long as these employee groups remain young and healthy, there are few incentives for employers to join the fully insured risk pool that includes older, less healthy individuals, who increase the price of insurance premiums."
When an employee or family member meets with an accident or gets HIV or cancer, the company will have to buy an insurance policy. After the Affordable Care Act insurers cannot charge higher premiums for companies with sicker workers.
"Churning between the self- and fully funded markets would allow small businesses to capitalize on the fully funded and regulated market only when employer risk is high without otherwise participating in the risk pool. This adverse selection could, in turn, raise premiums in the fully funded small group market."
The U.S. health-care system operates somewhere in between—risk pools are sliced and diced by geography, employer, and type of insurance. That creates incentives for "adverse selection," or sharing risk only when you're likely to have high costs, and going it alone when costs are low.
Some states are trying to stop the practice of self-insurance by small businesses, mostly by regulating stop-loss insurance. Those are secondary policies that employers buy that will pay out if medical claims get very costly.
Hannah Punitha (IRDA Licence Number: 2710062)
John Tozzi, June 2013