By Timothy Jost
Health Affairs Blog, April 27, 2012
Stop-Loss Coverage And Self-Insured Plans
On April 27, 2012, HHS, Treasury, and Labor published a Request for Information Regarding Stop Loss Insurance. The concern that drives this is the potential of stop loss-insured self-insured employer plans destabilizing the small group insurance market post-2014.
Employers have always had reasons to self-insure. Plans that are self-insured escape state regulation, including state mandates, and can be less expensive than commercial insurance for low-risk groups. The Affordable Care Act (ACA), however, increases these incentives dramatically. Insurers understand this, and are actively marketing “self-insured” products to small groups. These products offer administrative services and “stop-loss” coverage that shields small employers from the risk that would otherwise make self-insured status unattractive. They often have very low “attachment points,” which define when the employer ceases to bear risk and the stop-loss insurer takes over. Some stop loss plans are almost indistinguishable from high deductible health plans, except that the risk remains nominally with the employer rather than the employee.
Self-insured plans become more attractive to small groups under the ACA for two reasons. First, they are subject to fewer regulatory requirements than are insured plans. Whether in or out of the exchange, small group plans must offer the essential benefits package, include their members in a single risk pool, participate in the risk adjustment program, offer the same premiums without regard to health status, and offer the precious metal tiers. Self-insured plans are not, however, subject to these requirements. Moreover, neither self-insured plans nor the stop-loss coverage that makes self-insurance possible for small groups are subject to the ACA’s minimum medical loss ratio requirements. Self-insured plans are also exempt from a fee imposed on insurers under ACA section 9010 and stop-loss plans do not need to justify unreasonable rate increases.
Second, once the ACA establishes guaranteed issue and bans health status underwriting and pre-existing condition exclusions for small groups in 2014, the risk to small employers of self-insuring will be dramatically reduced. Under current law in most states, a self-insured small employer faces the prospect of significantly increased stop-loss rates or lack of affordable access to conventional insurance if the group’s risk profile deteriorates (e.g. an employee or dependent gets cancer or needs an organ transplant). But, beginning in 2014, insurers (in or out of the exchange) will not be able to refuse to insure higher-risk small groups or exclude preexisting conditions, and will have to insure them at standard rates. SHOP (small employer) exchanges cannot have open enrollment periods for employers but must admit small employers whenever they apply for coverage. The threat of adverse selection to the exchanges could be substantial. Healthy small groups will be able to self-insure with stop-loss coverage and then leave that coverage and enter the exchange at standard rates the moment an employee or dependent suffers a serious illness or accident.
Without stop loss insurance, however, self-insured small group plans become much less viable. Few small groups can fully take on the risk of self-insuring without stop-loss. As of this point, stop loss insurance for small groups is not regulated at the federal level and largely unregulated at the state level. The term “self-insured” is not defined in the ACA, and the agencies clearly have the authority to define when a plan with stop-loss coverage is in fact so fully-insured that it ceases to be self-insured. In the request for information, the agencies are seeking to determine how common stop-loss coverage is, how it operates, how insurers decide which employers to insure and how much they charge, and how stop loss insurance is regulated. Presumably regulations will follow.
Comment:
By Don McCanne, MD
The Affordable Care Act offers Mack-truck-size loopholes for small businesses that decide to self-insure – loopholes that defeat many of the noble intentions of health care reform. Timothy Jost describes these loopholes above.
In his full article available at the link above, Professor Jost also describes 1) several technical considerations for the medical loss ratio, 2) some of the complexities in determining whether individuals have access to employer-sponsored plans, which in turn can affect eligibility for exchange plans, and 3) technicalities that determine whether or not employer-sponsored plans meet minimum value requirements.
A quick read of the full article will reinforce two points that we already know: 1) the Affordable Care Act significantly increases the administrative complexity of health care financing when our system is already weighted down with expensive administrative excesses, and 2) the Act opens up further the opportunity for gaming the system thereby perpetuating and expanding the inequities and injustices of our uniquely American system that already uses gaming that drives up costs and diverts our finite funds away from health care.
As Professor Jost says, more regulations should follow. Great. Each loophole patch seems to create multiple additional loophole opportunities.
It is astounding that we continue to make such an intense effort to try to get this turkey to fly when we could have a health care system that would soar like an eagle. (If only metaphors could send us off in the right direction, but alas… )