Does Limiting Allowable Rating Variation in the Small Group Health Insurance Market Affect Employer Self-Insurance?

Area of Science:

• Health Economics
• Public Policy
• Insurance Markets

Background:

• The Affordable Care Act (ACA) introduced adjusted community rating (ACR) in the small group insurance market.
• Employers may avoid ACR by self-insuring, potentially leading to adverse selection.
• Industry-specific health risks and pre-ACA rating regulations create varied market conditions.

Purpose of the Study:

• To evaluate how limitations on allowable premium rating variation affect employer self-insurance decisions.
• To assess the impact of these regulations across industries with differing health risk profiles.
• To determine if adverse selection concerns are substantiated by empirical evidence.

Main Methods:

• Utilized cross-state variation in pre-ACA rating regulations.
• Employed data from the nationally-representative 2008-2013 KFF/HRET Employer Health Benefits survey.
• Applied a triple-difference regression approach to analyze the data.

Main Results:

• Lower-risk employers facing laws limiting allowable premium rating variation showed a significantly higher predicted probability of self-insurance.
• The predicted probability of self-insurance was approximately 18 percentage points higher for these employers compared to similar higher-risk employers.
• Findings indicate a notable impact of rating variation limits on employer self-insurance behavior.

Conclusions:

• Limitations on allowable premium rating variation incentivize self-insurance among lower-risk employers.
• These findings support concerns about adverse selection within the small group insurance market under the ACA.
• Policy interventions regarding rating regulations have tangible effects on employer insurance strategies.