Self-insurance is the latest loophole that could implode Obamacare. The news comes courtesy of the New York Times, which was a strong supporter of the measure when it was working its way through Congress but has lately devoted much of its coverage to the law’s numerous problems.
The practice of self-insurance, whereby companies assume the financial risk for their employee’s health care costs, has traditionally been a game for big-companies. But Obamacare incentivizes smaller companies to take advantage of this method for avoiding paying premiums to commercial insurers.
Self-insuring companies protect themselves from big health care claims (like cancer treatments, for example) with what is colloquially called “stop-loss” insurance. Stop-loss insurers are exempt from many of the restrictions placed on traditional insurers and are able to deny coverage to companies with older, less healthy workers.
The worst-case scenario here seems plausible. The healthiest companies, both big and small, self-insure, while those with older, sicker workers are forced to stick with Obamacare after being denied stop-loss insurance. Traditional health insurers will be left with a customer base disproportionately in need of medical services, while the young and healthy who used to subsidize these costs enjoy the unfettered world of self-insurance. This will cause premiums to rise for older workers, creating a system that is unsustainable in the long run.
The Obama administration seems to have realized that this might be a problem and is considering rules that would discourage small companies from self-insuring, but Republican Senators are vowing to block any further regulations.
The core problem with Obamacare is that it depends on ripping off the young and healthy to subsidize the old and infirm. On the one hand, we’re glad that young people are able to escape the clutches of this trap, but we can’t help but notice that their escape will bankrupt the system. It’s almost as if the politicians didn’t read the law before they passed it, and had no idea how its various provisions would cause car crashes as they tried to roll it out.