Economic agents ponder the collapse of the pooling equilibrium

Robert Pear reports:

 “The new health care law created powerful incentives for smaller employers to self-insure,” said Deborah J. Chollet, a senior fellow at Mathematica Policy Research who has been studying the insurance industry for more than 25 years. “This trend could destabilize small-group insurance markets and erode protections provided by the Affordable Care Act.”

It is not clear how many companies have already self-insured in response to the law or are planning to do so. Federal and state officials do not keep comprehensive statistics on the practice.

Self-insurance was already growing before Mr. Obama signed the law in 2010, making it difficult to know whether the law is responsible for any recent changes. A study by the nonpartisan Employee Benefit Research Institute found that about 59 percent of private sector workers with health coverage were in self-insured plans in 2011, up from 41 percent in 1998.


 Large employers with hundreds or thousands of employees have historically been much more likely to insure themselves because they have cash to pay most claims directly.

Now, employee benefit consultants are promoting self-insurance for employers with as few as 10 or 20 employees.

And from the FT:

The penalty for not providing coverage is $2,000 per worker. According to the Kaiser Family Foundation, a non-partisan policy group, the average annual cost to employers of insurance is $4,664 for a single worker and $11,429 for a family.

(Do note that the worker will find the job less attractive without health insurance., so this may not translate into a net gain for the employer.)

Here is an update on the 50% premium that can be charged to smokers, assuming the repeal movement for that feature does not succeed.

And now let me stress that you should not expect salvation from the (stand-alone) private sector.  DNA sequencing seems to be making real progress, which will make private solutions harder to sustain, a problem which Alex pioneered the analysis of.

Addendum: Here is a good Christensen, Flier, and Vijayaraghavan Op-Ed on ACOs and their problems.


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