In the recent years
many small employers have tried to reduce their health care costs with self
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
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."
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."
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.
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
(IRDA Licence Number: 2710062)
John Tozzi, June 2013