An Increase in Self-Insurance Could Have Implications for State Insurance Exchanges

The growth in self-insurance could spell trouble for state insurance exchanges, Businessweek reports. Companies with younger and healthier workers may decide they're better off self-insuring to avoid subsidizing others with higher medical costs. With premiums for traditional policies continuing to rise, small businesses are increasingly ready to roll the dice. Some 20 percent of companies with 50 to 199 workers self-insured in 2010, up from 14 percent four years earlier, according to a Rand Corp. analysis commissioned by the U.S. Department of Labor.

That could spell trouble for the state insurance exchanges expected to launch in 2014. In those markets, premiums will reflect the total risk of all the people insured, so companies with younger and healthier workers may decide they’re better off self-insuring to avoid subsidizing others with higher medical costs. Self-insured plans are governed by federal law and not states, which typically oversee health insurance.