Daniel Schwarcz

Limiting the ACA's Threats to Small Group Health Insurance Markets

We identify three threats to small group health insurance markets that may result from the 2014 implementation of certain provisions in the Affordable Care Act (ACA). First, small employers with predominantly low‐income employees may tend to opt out of small group markets because their employees will be better off with subsidized individual coverage. Second, small employers with employees of heterogeneous income levels will have strong incentives to offer coverage that is either “unaffordable” or fails to provide “minimum value” in order to preserve the availability of government subsidies for their low‐income employees. Finally, small employers that continue to offer group plans will face increased incentives to self‐insure those plans, further contracting small group markets and subjecting them to adverse selection. Collectively, these forces may destabilize small group markets and increase the ACAs fiscal cost. We therefore conclude by offering various reforms aimed at offsetting these risks and preserving the viability of small group markets.

The Failures of State Insurance Regulation

This is the text of the ALI Early Career Scholars Medal address delivered at the American Law Institutes 94th annual meeting in Washington D.C., on May 24, 2017. The central argument of the speech is that many of the assumptions on which state insurance regulation is premised are outdated or simply wrong. As a result, much of the current system of insurance regulation in the United States is obsolete, ineffective, and inefficient.

Regulation by Threat: Dodd-Frank and the Non-Bank Problem

A central lesson of the global financial crisis is that banks are not the only types of financial firms that can pose dangers to the broader financial system. One of Dodd-Frank’s primary mechanisms for responding to this reality is to empower a council of financial regulators to designate individual non-bank financial institutions as systemically risky. Although the Financial Stability Oversight Council (FSOC) has only exercised this authority four times, it has occasioned considerable controversy in court, in Congress, and among commentators. This Article defends the FSOC designation scheme, arguing that most of its critics misunderstand the mechanisms by which it helps to reduce systemic risk outside of the banking sector. FSOC designation does not, and cannot, precisely distinguish between firms that could pose a systemic risk and those that could not. FSOC’s broad discretion to impose costly sanctions on designated firms instead advances two quite different goals. First, it deters non-bank firms from seeking out systemically risky strategies or activities. Second, it holds financial regulators to account by threatening to impose additional restrictions and supervision on the firms they regulate if they fail to address systemic risk on their own. We term this approach “regulation by threat,” and suggest that it is appropriate when risks are hard to identify, the perils of mistake are great, and the downsides of misdiagnosis extreme. Systemic risk outside of the banking sector meets this description to a tee. Moreover, we argue that the Council’s discretion is better cabined by its structure – which features diverse membership, voting, review, and political safeguards – than by insistence on particularly “hard look” judicial review, accompanied by the requirement of a cost benefit analysis for any individual designation decision. Similarly, the various reform proposals to limit FSOC’s discretion or impose additional procedural limits on its operations generally threaten to undermine the Council’s effectiveness by unnecessarily limiting its discretion, and thus its capacity to regulate by threat.

Research handbook on the economics of insurance law

Insurance law and insurance economics each have long and distinguished scholarly histories, but participants in the two disciplines have not always communicated well across academic silos. The Handbook encourages more policy-relevant insurance economics scholarship and more economically sophisticated legal scholarship by bringing together original contributions from leading scholars in insurance law and insurance economics on a range of issues involving insurance law and regulation.