If there’s one thing that President Obama and I agree on, it’s that “we shouldn’t be holding small businesses back – we should be making it easier for them to succeed.” Across our state, California’s small businesses are struggling to recover from the greatest financial downturn of our lifetime. Many have been forced to cut costs, reduce their workforce, or close their doors altogether. And yet, if a bill on the floor of the California State Senate becomes law, small employers will have to take it on the chin financially yet again – threatening either their financial viability or the option to provide their employees with health care benefits.
At issue is a financial tool, known as “stop-loss insurance,” that some small employers use to protect themselves from catastrophic health claims when they choose to self-fund their employees’ health benefits. This financial backstop protects small employers from risk by paying the employers’ share of health claims when costs exceed an amount agreed upon in the insurance policy. These preset amounts are known as “attachment points” and they work like deductibles on your car insurance. If a small business owner has a $20,000 attachment point, they would pay that amount toward an employee’s medical bills and be reimbursed by the insurance company for any amount over that in a given year.
However, Senate Bill 1431 would require employers to bear an unreasonable level of claims costs before their stop-loss policies could take effect. This would effectively eliminate the ability of small businesses to self-insure. In this uncertain economy, how many small businesses can absorb higher health insurance costs?
This legislation is based on an unproven and false assumption that only employers with healthy employees choose to self-insure, removing “healthy lives” from the insurance market and driving up everyone else’s costs. It also reflects concerns that self-insured businesses will not participate in the new government-run small business health exchange set to come online in 2014, leaving businesses with “less-healthy” workforces to share the higher costs of healthcare. But this is pure speculation and has never been a problem before.
In fact, there is absolutely no evidence that employers that self-insure have a healthier workplace. Quite to the contrary, the employees covered under self-funded small employer plans are heterogeneous – working in a variety of industries, enjoying varied health status, and changing jobs frequently enough that it would be nearly impossible for any employer to predict the relative health status of its workforce year-over-year.
What small employers who self-fund do have in common is their desire for greater flexibility and control over their health plan. Those who choose to self-fund have access to their claims data that allow them to make better-informed decisions about what benefits their employees need. And because they have a direct financial interest in their employees’ health, self-funded employers are incentivized to do all they can to keep their employees healthy. This not only benefits employers and employees, it benefits all of us through reduced pressure on, and cost to, our healthcare system overall.
A recent study in the journal Health Affairs shows that attempting to manipulate the makeup of the exchanges in such a way as SB 1431 does will lead to fewer, not more, employees with health care coverage. If enacted, Senate Bill 1431 will take choices away from those small businesses who – even though not required to – want to provide their employees with health care coverage, forcing them to forgo it altogether. That’s not good for our state’s small businesses. It’s not good for their employees. It’s not good for the small employer health insurance market. Lawmakers should reject this misguided scheme and protect health care choices for California’s small businesses.
Ed’s Note: John Kabateck is the executive director of the National Federation of Independent Business, California.