Study: Employee Dumping in Insurance Exchanges Could Become Widespread

Fears of cherry-picking or employee dumping — in which employers insure their healthiest and induce sicker employees to choose public insurance exchanges — have been well articulated, but a new paper written by two professors from University of Minnesota Law School now confirms those fears and says it could substantially jeopardize healthcare reform. 

Amy Monahan, JD, and Daniel Schwarcz, JD, said it's likely that PPACA will lead some, if not many, employers to use a dumping strategy that keeps low-risk employees on employer-sponsored insurance but incentivizes high-risk employees to voluntarily opt out. Instead, those high-risk employees may purchase insurance through insurance exchanges established by PPACA.

Employers could accomplish this by offering generous coverage for preventive and wellness services while imposing more cost-sharing requirements for hospitalizations or other services that high-risk employees are likely to need, according to the paper.

If a small number of employers accomplish this, many others may follow suit by mimicking their strategies. Over time, such a practice will lose its stigma. The authors say "the reputational and labor market consequences of dumping high-risk employers are likely to diminish to the degree that such a strategy becomes widespread."

The authors note that PPACA "grants self-insured employers tremendous amounts of freedom in designing the terms of their plans." They also say employee dumping has been largely overlooked in public policy debates and that lawmakers have failed to develop solutions to the problem.

By dumping high-risk employees, employers could subsequently increase premiums and lower coverage rates. The strategy could also increase costs to the federal government for subsidizing coverage for low- and moderate-income individuals. Combined, the authors say these forces could cripple the sustainability of insurance exchanges and pose a great risk to healthcare reform as a whole.  

Related Articles on Insurance Exchanges:

HHS Gives $220M to 13 States for Health Insurance Exchanges
Average Total Health Benefit Costs Per Employee Top $10k in 2011
Federal Government to Design Basic Benefits Package for Health Exchanges

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