Limiting the ACA's Threats to Small Group Health Insurance Markets

• Author: Daniel Schwarcz,Amy B. Monahan
• Published date: 01 March 2013
• Date: 01 March 2013
• DOI: http://doi.org/10.1111/rmir.12001

Risk Management and Insurance Review

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Risk Management and Insurance Review, 2013, Vol.16, No. 1, 25-34

DOI: 10.1111/rmir.12001

LIMITING THE ACA’STHREATS TO SMALL GROUP HEALTH

INSURANCE MARKETS

Amy B. Monahan

Daniel Schwarcz

ABSTRACT

We identify three threats to small group health insurance markets that may

result from the 2014 implementation of certain provisionsin the Affordable Care

Act (ACA). First, small employers with predominantly low-income employees

may tend to opt out of small group markets because their employees will be

better off with subsidized individual coverage. Second, small employers with

employees of heterogeneous income levels will have strong incentives to offer

coverage that is either “unaffordable” or fails to provide “minimum value” in

order to preserve the availability of government subsidies for their low-income

employees. Finally,small employers that continue to offer group plans will face

increased incentives to self-insure those plans, further contracting small group

markets and subjecting them to adverse selection. Collectively, these forces

may destabilize small group markets and increase the ACA’s fiscal cost. We

therefore conclude by offering various reforms aimed at offsetting these risks

and preserving the viability of small group markets.

INTRODUCTION

A central goal of the Patient Protection and Affordable Care Act (the ACA) is to re-

suscitate the individual health insurance markets that have generally failed to pro-

vide individuals with affordable coverage options. It thus heavily subsidizes the

purchase of individual coverage for low- and moderate-income individuals, taxes in-

dividuals who opt not to acquire coverage, and creates insurance exchanges meant to

improve the process of shopping for such coverage. At the same time, the ACA seeks

to preserve employer-based health insurance coverage. To do so, it maintains the tax

benefits of employer-sponsored coverage and the regulatory benefits of self-insurance

while penalizing large employers who drop coverage in an effort to take advantage of

Amy B. Monahan is a Professor and Solly Robbins Distinguished Research Fellow at the Univer-

sity of Minnesota Law School, N226 Mondale Hall 229, 19th Ave.South, Minneapolis, MN 55455;

phone: 612-624-1261; e-mail: monahan@umn.edu. Daniel Schwarcz is an Associate Professor at

the University of Minnesota Law School, 320 Walter F. Mondale Hall, 229, 19th Avenue South,

Minneapolis, MN 55455. This article is a highly abridged version of our forthcoming article,

“Saving Small Employer Health Insurance,” Iowa Law Review, Volume 98, 2013. This article was

subject to double-blind peer review.

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