Impact Small Firms ' Actions In Two Areas , And Exchange Premium And Enrollment Federico

The Affordable Care Act changed the regulations governing small firms’ health insurance premiums. However, small businesses can avoid many of the new regulations by self-insuring or maintaining grandfathered plans. If small firms with healthy and lower-cost enrollees avoid the regulations, premiums for coverage sold through insurance exchanges could be unaffordable. In this analysis we used the RAND Comprehensive Assessment of Reform Efforts microsimulation model to predict the effects of self-insurance and grandfathering exemptions on coverage and premiums available through the exchanges. We estimate that Affordable Care Act regulations restricting employers’ ability to offer grandfathered plans will result in lower premiums on plans available through the exchanges and will have small negative effects on enrollment in the exchanges. Our results suggest that these regulations are essential to keeping premiums on the Small Business Health Options Program (SHOP) exchanges affordable. Our analysis also found that Affordable Care Act regulations limiting self-insurance will reduce enrollment in the exchanges somewhat, without substantially affecting exchange premiums. T he Affordable Care Act of 2010 changed the regulations governing health insurance premiums for employers with 100 or fewer workers. Beginning in 2014, insurers will be able to vary premiums for enrollees at these small employers only by enrollees’ age, geographic region, family size, and whether or not they are tobacco users, and the degree of variation will be limited. Importantly, insurers will be unable to charge different premiums based on employees’ sex, health status, or previous claims history. The goal of these regulations is to spread the financial risk associated with insuring unusually sick or high-cost enrollees across a wide pool of employers. This type of risk spreading tends to reduce premiums for firms with sicker and higher-cost enrollees, while increasing premiums for firms with healthier and lower-cost enrollees. The new regulationswill apply both inside and outside of the health insurance exchanges, which were also created by the Affordable Care Act. However, certain small-employer health plans are exempt from the regulations. Plans that existed on or before March 23, 2010, are exempt frommost of themunder a “grandfathering” exception. Through grandfathering, employers can continue to offer health insurance policies that were in place prior to the enactment of the Affordable Care Act, as long as the policy does not make major changes in its cost-sharing requirements, the scope of services covered, or employees’ premium contribution rates. Firms can also avoid the new regulations by “self-insuring,” or paying for their employees’ health care expenses directly or through a trust. Because self-insured firms bear the risk associatedwith employees’ unanticipated, large health doi: 10.1377/hlthaff.2011.1024