Small Businesses Save by Self Insuring

Posted on March 16, 2013 by Michael Caputo

Trend threatens Obamacare marketplaces

USA Today recently wrote about a Maryland company that decided to self insure its 60 employees, effectively opting out of Obamacare. According to NorthBay Executive Director George Comfort, the decision to pay workers’ health costs directly was about free choice, savings and what’s best for his company.

The company saves 45% by self-insuring its 60 covered employees compared with the price of regular health care coverage, due in part to its very young workforce. But the trend threatens to strangle the soul of Obamacare – the storied online marketplaces where small companies must turn to buy health insurance for employees.

…Others see it as a threat to the Affordable Care Act. As more small employers such as NorthBay avoid the act’s requirements through self-coverage, small-business marketplaces intended to cover millions of Americans could break down and become unaffordable, they say.

“What you’ve got is basically a loophole for the small employer to get out of the ACA requirements,” says Robert Laszewski, a Virginia-based consultant and former insurance executive.

That undermines a basic feature of the exchanges: the “community rating” that obligates insurers to offer similar prices to all comers, spreading the cost of care among well and sick alike. In a worst-case scenario, small employers will self-insure when workers are healthy, avoiding community rating, then immediately buy price-controlled coverage on the exchanges if someone is gravely ill.

Health-act advocates especially worry that firms with fewer than 50 employees will self-insure. Those companies aren’t required to offer policies under the health law, but many are expected to buy in online marketplaces, called exchanges, scheduled to open in October.

Be sure to read this unusually in-depth USATODAY article on small business self-insurance.