But now a market for “stop-loss” insurance for firms that self-insure has emerged to address that problem. This type of insurance will reimburse a firm for its employees’ health costs if those costs go beyond a certain threshold, known as an “attachment point.”
While stop-loss insurance for self-insuring firms pre-dates Obamacare, the market has skyrocketed since the law’s passage. And smaller and smaller firms are joining the list of those that self-insure with stop-loss insurance. “Now, employee benefit consultants are promoting self-insurance for employers with as few as 10 or 20 employees,” the Times ominously notes.
What’s more, some of these small firms have had the audacity to say that it is primarily to escape from Obamacare that they are self-insuring. For instance, J. Richard Jones, the president of Label Solutions, an industrial-label printing company with 42 employees in Marshfield, Mo., told the Times
he switched to self-insurance “to hold down costs that were going up because of government regulation under Obamacare.”
An apoplectic “How dare they!” has been a common reaction among Obamacare’s strongest boosters. Perennial MSNBC guest Wendell Potter exclaimed in The Huffington Post that self-insurance by smaller firms “has the potential to cause the collapse of [Obamacare’s] exchanges and completely circumvent the intent of Congress.”
Would that this were the case. But self-insurance does not do away with all of Obamacare’s mandates. Firms that self-insure still have to provide their employees with what the law defines as “essential benefits,” including first-dollar coverage for contraception.
Where self-insurance makes a difference is that it offers both smaller firms and younger employees a chance to escape the costs of subsidizing everyone else’s insurance. Under Obamacare’s “guaranteed issue” and “community rating” mandates, insurance companies must take all comers and are severely limited in their ability to price for risk. That means younger and healthier folks will be paying much higher rates.
By contrast, firms that self-insure have to worry about medical costs only for their own workers, and they don’t even have to pay the 3.5 percent excise tax for insurance plans sold on the exchanges. This makes Obamacare boosters such as Potter very angry. “The intent of Congress was to make coverage more affordable and available to all of us, not just the young and healthy,” he fumes.
Potter’s dismissive tone shows how two-faced Obamacare supporters can be when making the pitch to young Americans. Without self-insurance, young adults start their working lives under Obamacare with weights tied around their ankles. There will be fewer jobs for them, as firms will be less likely to take on expensive insurance costs with new hires. And young adults will have to devote more of their earnings to the health-insurance “pool,” preventing them from building the nest egg needed to buy a home, raise a family, and provide for their own eventual retirement and needs in old age.
Unsurprisingly, Obamacare’s defenders are doing all they can to strangle small-business self-insurance in the cradle States are preempted from regulating self-insurance by the Employee Retirement Income Security Act, so left-leaning state lawmakers, in a direct assault on small businesses, are going after the stop-loss plans that enable smaller firms to self-insure.
Bills pending in the Minnesota and Rhode Island legislatures would ban stop-loss insurers from offering policies with annual deductibles under $60,000 per employee — a sum that is easily affordable for big corporations but that could bankrupt smaller firms. This would leave small businesses no choice but to buy employees’ policies on the Obamacare exchanges or pay taxes for not doing so. And that is exactly what Obamacare proponents want.
Eventually, self-insuring small businesses that use stop-loss policies could force Congress and the administration to go back to the drawing board on health care, creating an opportunity for true free-market reform. As Obamacare supporters attempt to close the exit doors, defenders of small business, free markets, and young workers must fight back and pry them open.
— John Berlau is senior fellow for finance and access to capital at the Competitive Enterprise Institute.