Pursue a Texas-based Obamacare alternative

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This commentary originally appeared in  on April 3rd, 2014. 

The latest Obamacare enrollment numbers show that fewer than 300,000 Texans have bothered to sign up for health coverage on the federal exchange. Nearly 6 million Texans are uninsured. After five months of open enrollment, why haven't more people signed up?

One reason might be that the plans offered on the exchange are expensive and offer narrower provider networks than most private health insurance plans. Enrollment data from the Department of Health and Human Services shows that more than 758,000 people in Texas completed an application on the exchange, which means that among those who got a detailed look at Obamacare plans, more than 60 percent didn't bother to select one, much less pay for it.

This suggests that the Obama administration's top-down approach to health reform is not delivering the options that Americans want. Fortunately, Texas lawmakers can do something about it. By making self-insurance more attractive to small businesses, and by authorizing a savings-based approach to self-funded individual coverage, state leaders can spare Texans from much of Obamacare.

When employers self-insure, they simply pay directly for the cost of employees' medical claims instead of contracting with an insurance company to settle them.

Because self-funded benefit plans are not insurance plans, they're exempt from Obamacare regulations and taxes, and also from state insurance regulations. Such plans instead fall under the 1974 Employee Retirement Income Security Act, which frees companies to tailor health benefits according to their employees' needs.

In the past, this flexibility made self-insurance attractive mostly to large corporations that could spread risk among a large pool of employees and absorb unforeseen high-cost claims. Last year, 83 percent of all covered employees at large firms were enrolled in self-funded or partially self-funded plans, compared to only 16 percent of employees at small firms.

But the onerous rules and regulations of Obamacare are making self-insurance an attractive option for smaller companies.

Because small firms take on more risk by self-insuring, many purchase stop-loss coverage to protect against unexpected high-cost claims. Major insurance companies like Humana and United Health are now offering stop-loss coverage to much smaller firms than they used to as companies look for ways to contain costs while continuing to offer benefits.

Among Obamacare proponents, a movement is afoot to regulate stop-loss coverage and close the so-called self-insurance loophole in Obamacare. Last fall, California passed a law that all but ensures small businesses will not be able to afford stop-loss coverage and therefore will not be able to self-insure.

Texas should do the opposite. By defining stop-loss coverage in state statute and exempting it from state taxes, Texas lawmakers could make stop-loss coverage more affordable to small businesses and therefore make self-insurance a feasible alternative to buying coverage under Obamacare.

State leaders could do something similar for self-employed Texans and those whose employers don't offer coverage.

A bill that passed last session in the Texas House but failed to gain support in the Senate would have recognized those who set aside funds to pay for their own health care as self-insured individuals. A new draft version of the bill relaxes the savings requirement so that more Texans could pursue this option simply by setting aside eight percent of their income to pay for future health care costs—the same affordability threshold mandated by Obamacare.

As the failures and disappointments of Obamacare stack up, state leaders should remember that they are not helpless in the face of the federal health care law.

By making stop-loss coverage more affordable to small businesses, and by authorizing individuals to self-insure, Texas can forge a path toward a viable, market-driven alternative to Obamacare that empowers Texans to pay for health care on their own terms.

John Davidson is a senior health care policy analyst at the Texas Public Policy Foundation in Austin.

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