State legislatures in
California, Minnesota, Rhode Island, and Utah have recently proposed
bills that would limit stop-loss coverage for self-funded health
plans. In general, the proposals would make self-funding less
attractive by raising the minimum deductibles (attachment points)
currently allowed under stop-loss policies.
Under self-funded health
plans, employers generally pay covered health care expenses from
their general assets or an employer-established trust, up to a
predetermined amount. After that, the stop loss carrier will
reimburse the employer for any additional health care expenses.
Consequently, self-funded arrangements are typically used by large
employers with significant financial resources. However, many
insurers have begun to offer stop-loss policies with lower attachment
points to smaller businesses in order to make self-funded
arrangements viable for these employers.
Stop-loss policies limit an
employer's liability for large claims by paying for medical expenses
beyond a specified limit for: (i) each covered individual (i.e.,
the individual or specific attachment point); and/or (ii) the plan (i.e.,
the aggregate attachment point).
Supporters of the proposed
legislation argue that self funding merely allows companies to avoid
certain state insurance regulation, as well as certain aspects of
PPACA, such as the requirement that group health plans cover
essential health benefits. In addition, backers of the
proposals claim that insurers are primarily selling stop-loss
policies to companies with healthier workers, and that if too many
smaller companies use stop-loss policies to self-fund, Health Care
Exchanges will be left with primarily older and sicker members.
Critics of the proposals
maintain that stop-loss insurance is not ERISA-covered health
insurance, and that any law attempting regulate it as such would
affect the administration of self-funded group health plans and would
therefore be preempted by ERISA. Opponents also believe that
the legislation would make it harder for employers to self-insure
their health benefits and thereby steer more lives into the Health
The following is a summary
of each proposed piece of stop-loss legislation:
California S.B. 161: California's stop-loss bill would:
· prohibit stop-loss policies written after January
1, 2014, from having specific attachment points of less than $45,000;
· require aggregate attachment points to be no
lower than the greater of: (i) $19,000 multiplied by the total number
of covered lives; or (ii) 120% of expected claims.
Minnesota H.B. 647: Minnesota's proposal would prohibit
stop-loss insurers from:
· issuing new policies to self-funded plans of all
sizes with specific attachment points below $60,000; and
· issuing policies to employers with 50 or fewer
employees with aggregate attachment points less than the greater of:
$4,000 multiplied by the number of covered lives; 120% of expected
claims; or $20,000.
Rhode Island H.B. 5499: Rhode Island's proposal would:
· prohibit stop-loss policies with specific
attachment points of less than $60,000; and
· bar aggregate attachment points for small
employers below the greater of: $15,000 multiplied by the number of
covered lives; or 130% of expected claims.
Utah H.B. 160: Utah's proposal would:
· require stop-loss insurers to cover incurred but
unreported claims if a small employer plan terminates; and
· prohibit "lasering," a practice used by
stop-loss insurers to set higher specific attachment points for
individuals with pre-existing conditions.