How can tiny, self-insuring companies, with say only 30 or 80 workers, bear the risk of unexpectedly large claims? They buy reinsurance, also known as stop-loss coverage. Stop-loss kicks in when somebody’s bills top, say, $20,000 or $50,000. Say you’re a self-covered small business with 70 employees. Your normal annual medical bill is $400,000 (no family coverage), and you hire the local Blues or somebody else to handle the claims administration. If a worker gets cancer and the bills soar into six figures, you pay only the first $20,000. The stop-loss plan handles the rest.
Self-insurance looks like regular coverage – only without the ACA rules
Brokers have been increasingly promoting self-coverage as an Obamacare “escape hatch”, since businesses that self-insure are exempt from the law’s unpopular requirements. ACA limits on health insurance profits also don’t apply to reinsurance. Therefore, companies with as few as 10 or 20 workers are reportedly now self-insuring, protecting themselves with stop-loss that kicks in at levels as low as a few thousand dollars.
To the employer, the employees and the world it looks like regular health insurance without the ACA rules. (The employer mandate was delayed for a year, but not all regulations affecting insurance were put off.) Small businesses see it as a way to offer coverage and avoid rate shock. ACA fans see it as gaming the system.