Regulators Seek To Block Small Businesses From Escaping Obamacare

Preventing them from self-insuring forces them into the pool

That's the question states around the country are asking as they consider restricting how employers can set up their health insurance plans. Colorado lawmakers will hold a hearing April 9 on a bill aimed at keeping small businesses in the state insurance market at a time when some are considering self-funded plans that can be cheaper and skirt some of the requirements of Obamacare. What happens there and in other states could affect how much small groups pay for health coverage next year.

First some background: A company has two ways to provide health insurance to workers. In the conventional "fully insured" approach, an employer buys a policy from an insurance company such as WellPoint (WLP) or Aetna (AET), paying a premium for the insurer to cover the risk of medical claims. The other method, called self-insurance or self-funding, essentially makes the employer the insurance company. The business sets aside money for the plan and pays employee's medical claims directly. In this scenario, employers come out ahead if medical costs are less than expected. They're also on the hook if the costs are higher.

To reduce their exposure to big, unexpected medical claims, self-insured companies often buy "stop-loss" policies, a form of reinsurance that pays the employer if workers' health costs hit a certain level. (It's similar to a deductible on an individual insurance policy, only paid by the employer.) If these ceilings are low, the employer is essentially selling off most of its risk to the stop-loss insurer. Colorado currently lets stop-loss policies kick in once an employee has incurred $15,000 in medical claims. The proposed law would double that level. It's saying to employers: If you're not ready to shoulder more risk, you shouldn't be self-insuring.