Rules that allow some small employers to avoid regulation under health reform are unlikely to have a major impact on the future cost of health insurance unless those rules are relaxed to allow more businesses to opt out.
Analysis by the RAND Corporation of two rules that allow small businesses to avoid participating in health reform concludes they will have only a minor impact because few businesses are likely to take advantage of the options. Findings were published in the February issue of the journal Health Affairs.
“We found 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,” says Christine Eibner, the study’s lead author and a senior economist at RAND, a nonprofit research organization.
Beginning in 2014, under the PPACA, insurers will be able to set premiums higher or lower for enrollees at small businesses based only by the enrollees’ age, family size, geographic location and whether they use tobacco. Factors such as gender, health status or previous claims history will no longer be allowed to affect premiums.
The goal of these strategies is to spread the financial risk associated with insuring unusually sick or high-cost enrollees across a wider pool of employers and employees.
There have been concerns that such cost sharing could be undermined if small employers with relatively healthy workers and dependents avoid the new regulations by self-insuring or by maintaining grandfathered health insurance plans—two options that allow them to avoid regulation under the PPACA.
Should that happen, researchers say, premiums offered to small businesses that remain in the exchanges could become unaffordable.
RAND researchers considered how grandfathering and self-insurance options may impact coverage and premium costs for policies sold through insurance exchanges set up for small employers. The analysis was done using a microsimulation model created by RAND Comprehensive Assessment of Reform Efforts.
But, researchers say, most small employers will steer clear of self-insuring because of the significant financial risk that’s involved. The self-insure option also will reduce enrollment in the small business insurance exchanges changes somewhat, but it won't have a substantial impact on exchange premiums.
Researchers also report that federal agencies have projected that most small employers will not be able to meet the standards required to grandfather existing health plans after 2014.
But if regulations were relaxed to allow more employers to maintain grandfathered plans, premiums offered to small employers through health insurance exchanges would be significantly higher, the study finds. In that case, enrollment through the Small Business Health Options Program exchanges could drop by as much as 50 percent.