Saving small-employer health insurance

Health care reform devotes substantial attention to resuscitating the small-group health insurance markets that serve employers with fewer than fifty full-time employees. Nevertheless, a number of interweaving provisions embedded within the Affordable Care Act create strong incentives that, starting in 2014, will tend to undermine these markets and, in the process, increase the fiscal cost of reform. First, small employers with predominantly low-income employees will tend to opt out of small-group markets. Second, small employers with mixed-income employees will have strong incentives to offer coverage that is either technically not "affordable" or that fails to provide "minimum value" in order to preserve the availability of premium and cost-sharing subsidies on individual markets for their low-income employees. Third, small employers with unusually low-risk employees will have strong incentives to self-insure any group plan they do offer in order to avoid cross-subsidizing higher-risk groups. Analyzing these risks collectively, this Article offers a number of recommendations for saving small-group markets. For instance, it argues that the Small Employer ("SHOP") exchanges that are intended to organize small-group markets in 2014 must strategically target the weaknesses of selfinsurance by offering simple and risk-free coverage options that facilitate employee choice. They must also market this coverage aggressively in response to insurance brokers' likely financial incentives to push selfinsurance on small employers. Additionally, state and federal regulators should explore various possibilities for making small employers more likely to offer group coverage through SHOP exchanges. To accomplish this, they should consider regulating stop-loss insurance and preventing churning between the self-insured and small-group markets.