U.S. Companies Engage In Financial Jiu-Jitsu To Get Around Obamacare

Obamacare’s most notorious regulations — including the mandate that employers provide health insurance to their workers or pay a fine — are still several months off. But businesses are wasting no time finding ways to free themselves from the law’s strictures.

First, companies announced that they’d cut hours, hire contractors, and take other steps to dodge the mandate that they provide health insurance to full-time employees or pay a fine.

Now they’re engaging in some financial jiu-jitsu. Many firms — including small ones — are looking to “self-insure” so that they can avoid the sky-high insurance premiums that Obamacare augurs on the open market and through the exchanges.

If small businesses opt out of the exchanges Obamacare expressly designed for them, those marketplaces could fall apart before they even launch. Small businesses are particularly ill-equipped to deal with the labyrinth of rules, regulation, and mandates that Obamacare will install next year — even if they don’t have to comply with the employer mandate.

A survey by the American Action Forum found that major insurers in five big cities expect some small-business premiums to more than double. A Massachusetts insurance broker is warning small businesses there to expect rate hikes of 30 percent or more next year.

In Maryland, CareFirst Blue Cross Blue Shield, the state’s largest insurer, is seeking approval for a 15-percent hike on small-business plans in 2014. Rhode Island insurers are pushing for equally steep increases — and pointing to Obamacare as the cause.

Meanwhile, the inauguration of the much-ballyhooed “Small-Business Health Options Program — SHOP, for short — has been delayed by the federal Department of Health and Human Services because of “operational challenges.” These exchanges were supposed to give employees at small businesses lots of government-approved choices of insurance coverage. Instead, they’ll have just one choice in 2014. The full array of insurance options will not be available until 2015.

So much for competition.

It’s no wonder that small businesses are doing everything they can to mitigate the impact of Obamacare. The latest technique? Self-insuring.

Here’s how it works. A company pays for the health care its workers consume directly. It may outsource the operation of its plan to a third-party administrator (TPA). In fact, many well-known insurance companies also maintain separate arms that act as TPAs.

So the firm assumes the risk associated with its workers’ health costs. To protect itself against the possibility of catastrophically high medical bills, the company may also purchase what’s called a “stop-loss” policy that kicks in once medical expenses cross a certain threshold.

Self-funding empowers companies to save money. They can escape costly state insurance mandates, as their plans are regulated at the federal level. Multi-state firms can avoid offering different insurance policies for workers in each and every state where they operate.

Companies can also tailor their benefits plans to the specific needs of their employees — rather than buying an off-the-shelf policy from a commercial insurer. And because they pay claims directly, they can hold onto any unspent funds — instead of turning them over to an insurer as a fixed premium.

Obamacare has unwittingly provided at least one more incentive to firms to self-insure. The law’s tax on insurance premiums only applies to conventional fully insured policies. So by self-insuring, companies can avoid taxes that could add 2 to 4 percent to premiums.

Self-insurance used to be solely the province of large companies. About 80 percent of companies that employ 1,000 or more workers self-insure, according to the RAND Corporation — but only 8 percent of those with fewer than 50 workers do so.

Thanks to Obamacare, that’s changing. A RAND analysis found that a fifth of firms with 50-200 workers had self-insured by 2010, the year Obamacare became law — up from 14 percent of such companies in 2006.

A survey by Munich Health North America found that 82 percent of health insurance executives report seeing growing interest in self-funded coverage among employers. A California-based benefits consulting firm that helps companies self-insure told Kaiser Health News that its business has doubled in the past six months. And Cigna says that it saw self-coverage for small businesses grow by a fifth last year.

Companies with younger, healthier workforces are leading the way. After all, with their population of low-risk employees, they have the most to gain. And that’s bad news for Obamacare’s exchanges.

If companies with younger workers drop out of the conventional insurance market, then those who are left will generally be older and sicker. That, in turn will drive insurance premiums up — and push yet more companies to consider self-funding.

So the Obama Administration may have to accept small-business premiums that spiral ever higher — unless it moves to ban small businesses from taking the self-insurance escape hatch.

The clock is ticking. America’s small businesses may discover that some good old-fashioned American self-reliance may be the best way to dodge what Obamacare has in store for them.