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How Much Risk Is Too Much for Small Businesses?

How Much Risk Is Too Much for Small Businesses?
Photograph by Eric Bean/Getty Images

That’s the question states around the country are asking as they consider restricting how employers can set up their health insurance plans. Colorado lawmakers will hold a hearing April 9 on a bill aimed at keeping small businesses in the state insurance market at a time when some are considering self-funded plans that can be cheaper and skirt some of the requirements of Obamacare. What happens there and in other states could affect how much small groups pay for health coverage next year.

First some background: A company has two ways to provide health insurance to workers. In the conventional “fully insured” approach, an employer buys a policy from an insurance company such as WellPoint or Aetna, paying a premium for the insurer to cover the risk of medical claims. The other method, called self-insurance or self-funding, essentially makes the employer the insurance company. The business sets aside money for the plan and pays employee’s medical claims directly. In this scenario, employers come out ahead if medical costs are less than expected. They’re also on the hook if the costs are higher.