Christine Eibner, an economist and director of the Comprehensive Assessment of Reform Efforts Microsimulation Modeling Initiative at the RAND Corporation in Arlington, Va, is the lead author of a study published in the February edition of the journal Health Affairs, which analyzed two rules -- allowing employers to self-insure or maintain grandfathered health insurance plans -- to avoid participating in health reform and how they might impact the future cost of health insurance.
Other authors of the study are Carter C. Price, Raffaele Vardavas, Amado Cordova and Federico Girosi.
Eibner spoke recently with Healthcare Payer News Contributing Writer Molly Merrill.
Q: How likely is it that a trend could develop where small employers self-insure or maintain grandfathered health insurance plans to avoid regulation under the Affordable Care Act?
A: Our estimates, which are based on the COMPARE microsimulation model, suggest that these trends are unlikely. It will be expensive for small firms to maintain grandfathered health plans, since such plans cannot substantially increase cost sharing or change employees' premium contribution rates. Self-insurance is relatively risky for small firms, because self-insured firms must pay for employees' health expenditures, and a single large claim could lead to bankruptcy. It is possible for self-insured firms to reduce this risk by purchasing stop-loss coverage. But stop-loss policies can be expensive, and firms remain at risk for spending below the stop-loss deductible. We used a simulation approach to estimate whether the option to self-insure with stop-loss coverage might lead some small firms to self-insure to avoid the ACA's rating regulations, but we found no change in self-insurance rates. This finding is consistent with the observation that few small firms currently self-insure, even though self-insurance allows small businesses to avoid state rating regulations and benefits mandates.
Q: The study concluded that the self-insure option will reduce enrollment in the small business insurance exchanges changes somewhat, but it will not have a substantial impact on exchange premiums. What is the estimated drop in enrollment in small business insurance exchanges and subsequent impact on premiums?
A: Our estimates suggest that eliminating the option to self-insure might cause some small businesses that currently self-insure to stop offering coverage. But, because only about 6 percent of small businesses that offer coverage are projected to self-insure, the behavior of these firms has no discernible effect on exchange premiums.
Q: You suggest that "keeping the rules as they are written, particularly the limitations on maintaining a grandfathered plan will be essential to keeping premiums affordable in small business insurance exchanges." Why in particular is it important in the grandfathered plans?
A: Under the current regulations, plans will lose their grandfathered status if they make changes to cost-sharing requirements, or increase employees' premium contribution rates. With these restrictions, we predict that 88 percent of small firms that offered coverage before the ACA was enacted will lose grandfathered status by 2016. If the grandfathering rules were less restrictive, small businesses would be able to avoid regulations by holding onto grandfathered plans. Because firms with younger and healthier workers would have a particularly strong incentive to stay grandfathered, we predict that premiums on the Small Business Health Insurance Options (SHOP) exchange would increase by 9 percent if grandfathering were a less restrictive option.
Grandfathering has a bigger effect than self-insurance because it applies to a larger share of firms. We estimate that over 90 percent of small businesses offering coverage have a plan that is subject to the grandfathering regulations, while only about 6 percent offer a plan that is self-insured.
Q: What is the likelihood that the rules allowing some small businesses to avoid pending health reform measures could be re-written to extend the opt-out offer to more companies?
A: We didn't address this question, and I am not sure how likely it is that rules could be changed. But, we estimate that relaxing the grandfathering regulations could lead to a 50 percent decline in SHOP exchange enrollment, and a 9 percent increase in premiums for those who remain enrolled.
Q: Is Rand conducting any ongoing studies or future studies that will hit on this subject?
A: We are currently using the COMPARE model to analyze how implementation issues will influences premiums and enrollment in the health insurance exchanges. Stay tuned for an upcoming report on the effects of a possible Supreme Court decision to repeal the individual mandate.