The California Department of Insurance (DOI) is backing a bill in the California State Senate which imposes new limits on certain stop-loss policies sold to small employers whose health plans are self-funded. Such policies guarantee that the small employers’ plans won’t be responsible for any medical claims over a specified amount, sometimes as low as $10,000 or $20,000 per employee, with the remainder paid by the stop-loss insurer.
Amended Senate Bill 1431 prohibits a stop-loss carrier from issuing a stop-loss insurance policy to a small employer that contains an individual participant attachment point for a policy year that is lower than $95,000 or an aggregate, plan-wide attachment point for a policy year that is lower than the greater of the following:
- $19,000 times the total number of covered employees and dependents;
- 120% of expected claims; or
- $95,000.
In addition, the Senate Bill requires a stop-loss carrier to offer coverage to all employees and dependents of a small employer to which it issues an insurance policy; the carrier may not exclude an employee or dependent on the basis of actual or expected health status-related factors. Moreover, the stop-loss carrier would be required to renew all stop-loss policies at the option of the small employer and would be prohibited from providing direct coverage of an employee’s health claims.
According to an article in the Los Angeles Times, the DOI is concerned that plans with such a low stop-loss threshhold will appeal to companies with healthier workers and, as a result, drive up premiums for small businesses remaining in the typical group health plans. If that happens, a key goal of healthcare reform — to lower premiums by pooling together both healthy and sick employees — would be undercut. In addition, the DOI argues that low threshhold stop-loss coverage undermines the notion of self-insurance because the plans aren’t bearing much of the risk.
The National Association of Insurance Commissioners is updating its recommended limit for stop-loss policies. Its current limit of $20,000 per employee was set in 1995. According to the Kaiser Family Foundation, the average stop-loss policy for firms with fewer than 200 workers was $78,321 per employee last year.
Nonprofit insurer Blue Shield of California came out in support of the bill, with their Vice President of Government Affairs noting that “stop-loss insurers are using this product line to cherry-pick young and health small employers for coverage while leaving less health populations to the fully insured market.” Several trade groups, however, have vowed to stop the proposed law in court if necessary. They note that ERISA governs self-insured plans and preempts state laws that affect the administration of these plans.
While this bill was introduced in California, other states are considering similar legislation.
Los Angeles Times, “Proposed Limits on Health Self-Insurance Plans Debated” (April 21, 2012) – http: //www.latimes.com/business/la-fi-small-business-health-20120421,0,7969005.story