By Joanne Wojcik
Business Insurance, October 30, 2011
In an Oct. 25 letter to Thomas Considine, commissioner of the New Jersey Department of Banking and Insurance, the Self-Insurance Institute of America Inc. asked the department to rescind a bulletin it issued this month that alleges stop-loss insurers are “cherry-picking” employer groups with good claims experience.
The Oct. 3 bulletin alleges that the insurers, which write excess coverage for self-funded group benefit plans, are “selectively marketing coverage to small employers on the basis of health history of that employer’s employees, and denying coverage to employers based on employee health status. The result of this selective underwriting is to “cherry-pick’ groups less likely to incur claims, leaving the groups more likely to incur claims to the state’s guaranteed-issue insured market. This, in turn, drives premiums up for small employers purchasing insured plans.”
Because stop-loss insurance is excluded from the state’s definition of a health benefit plan, it is not subject to the same regulations as fully insured health coverage, the bulletin states. Therefore, the department has invoked New Jersey’s unfair trade practice law, asserting that “the selective marketing and underwriting described herein constitutes an unfair trade practice.”
Simpsonville, S.C.-based SIIA asserts that the department’s contention is “inflammatory and without merit. Stop-loss insurance is a completely different product than commercial health insurance, so it is misguided to conclude that “unfair competition’ exists,” SIIA said in its letter.
The Employee Retirement Income Security Act’s “regulatory exemption for self-insured (self-funded) plans is a persistent thorn in the side of state insurance regulators,” according to a September statement by Timothy Stoltzfus Jost, a law professor from Washington and Lee University School of Law in Lexington, Va., to the NAIC’s ERISA (B) Subgroup.
“This may be acceptable for large employer groups, which have the bargaining power and expertise to protect their employees. But when small-employer packages purchase “self-insured’ packages from insurers, including stop-loss coverage with very low attachment points and administrative services, they are essentially purchasing conventional health insurance, except that it is free from state regulation,” Mr. Jost said.
Moreover, he said “insurers have always had an incentive to market “self-insurance’ to healthy groups, and small businesses with healthy enrollees have always had an incentive to purchase it. The Affordable Care Act, however, increases these incentives…Insurers understand this and are very actively marketing “self-insured’ products to small groups.”
http://www.businessinsurance.com/article/20111030/NEWS05/310309989?tags=%7C74%7C305%7C339
Comment:
By Don McCanne, MD
For smaller employers who want to self-insure their health benefit programs, stop-loss insurance is an imperative. A very large medical bill for one employee or family member could bankrupt a small business. This need to protect against large losses has created a thriving market in self-insured packages from insurers, which escape health plan regulation, yet are beginning to look more like conventional health insurance with extremely high deductibles.
These plans not only provide stop loss coverage at a “low attachment point,” they are now providing administrative services for the employers’ self-insured plans, paying employees’ medical expenses using the employers’ funds. The attachment point – the level at which losses begin to be covered by the insurer – may be $40,000. That is a very low level for a stop-loss plan. Some conventional health plans have deductibles of $50,000. That blurs the distinction between a high deductible in a health insurance plan and a low attachment point in a stop-loss plan.
What is happening is obvious. The insurers are selling these “self-insured packages” as stop-loss plans, avoiding the regulatory oversight for health plans. Yet they actually function as health plans with very high deductibles.
Why does it matter? The insurers can avoid new regulations that prohibit medical underwriting. They are able to cherry pick – limiting the sale of these plans only to businesses with healthy employees, shifting the costs of higher risk employee pools to other programs with guaranteed issue. As Timothy Stoltzfus Jost states, “insurers have always had an incentive to market ‘self-insurance’ to healthy groups, and small businesses with healthy enrollees have always had an incentive to purchase it. The Affordable Care Act, however, increases these incentives…Insurers understand this and are very actively marketing ‘self-insured’ products to small groups.”
The private insurers have an absolute moral obligation to enhance value for their investors, and they must always make every effort to do so. The fault lies not with the private insurers themselves but with a financing model that is dependent on insurers. We need to change the model, switching to a single public insurer.