Escape from Obamacare
Small businesses look to self-insurance as way to avoid Obamacare’s costs and mandates.

Obamacare protestors at the Supreme Court, March, 2012


John Berlau

In the next nine months, young Americans — particularly those who believed in President Obama’s promise of health-care “reform” — are about to get the biggest sticker shock of their lives. Come 2014, the year Obamacare is set to go into full effect, young adults could see their health-insurance premiums soar by as much as 189 percent, according to a new study from GOP staffers on House and Senate committees.

The study’s projection in premium increases is based on a compilation of more than 30 studies and analyses from state insurance commissioners, academic economists and actuaries, and benefit consultants who found significant rate hikes for young adults. The respected economic consulting firm Oliver Wyman estimates that 80 percent of adults 21 to 29 years of age who make more than $16,000 a year will pay more for coverage, even after accounting for Obamacare’s subsidies.

Fortunately, there appears to be a partial escape hatch for young workers and others hit by Obamacare’s premium increases, even if they don’t work for big companies. Small firms and the specialized insurers that serve them may have found the lifeboats (to borrow Texas governor Rick Perry’s comparison of Obamacare to the Titanic) to sail away from many of Obamacare’s mandates. In response, Obamacare supporters at the state level are trying to seal the portholes and sink the lifeboats.

A recent New York Times story frets that “federal and state officials and consumer advocates have grown worried that companies with relatively young, healthy employees may opt out of the regular health insurance market to avoid the minimum coverage standards in President Obama’s sweeping law.” When Obamacare supporters “grow worried,” opponents of centralized health care should grow cautiously optimistic. And the phenomenon of small businesses’ self-insuring provides plenty of reason for optimism, provided that Obamacare boosters don’t find a way to shut down the self-insurance.

Why was this escape hatch not closed when the law passed? Quite simply, the administration bureaucrats and congressional staffers who crafted Obamacare greatly underestimated the resourcefulness of small businesses and the insurance entrepreneurs who cater to them.

In order to curb opposition to the legislation from Fortune 500–size companies, the vast majority of which self-insure, Congress exempted self-insuring firms from a number of Obamacare’s taxes and regulations. As a result, as the Times explains, “companies can avoid many standards in the new law by insuring their own employees, rather than signing up with commercial insurers.”

Obama and many Democrats were comfortable with this bargain as long as it was limited to the “1 percent” of large companies. But then, lo and behold, even before the ink from Obama’s signature on the legislation was dry, smaller firms started looking for ways to self-insure, and a burgeoning insurance-services market developed to help them do this. As Yuval Levin notes on NRO, entrepreneurs “are not drones awaiting instructions” but “reasonable people considering their options.” Accordingly, small businesses “have reacted not with indignation at such a regulatory oversight but rather by moving to self-insure.”

Small firms are boarding as fast as they can onto the SS Self-Insurance. And that has the Times and other boosters of the Obamacare Titanic in a tizzy.

Deborah J. Chollet, a senior fellow at Mathematica Policy Research, told the Times that “the new health-care law created powerful incentives for smaller employers to self-insure. This trend could destabilize small-group insurance markets and erode protections provided by the Affordable Care Act.”

Chollet has it exactly backwards. It is Obamacare, with its crushing taxes and one-size-fits-all mandates, that is destabilizing the insurance market, the employment market, and the U.S. economy. The self-insurance lifeboat is a way to contain the damage and ensure that small entrepreneurs aren’t trapped in Obamacare.

Self-insurance for health care and other insurable risks involves setting aside a fixed amount of money to compensate for potential future loss. Traditionally, this has been impractical for smaller firms because the possibility of unpredictable events, such as catastrophic illness, made it too risky for a firm below a certain size to guarantee a worker’s health-care costs.


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