States Try to Impose Tougher Stop-loss Limits on Self-insured Health Plans

Recently, four bills were introduced in state legislatures that would make self-funding less attractive by limiting stop-loss coverage for self-insured health plans. Many such proposals would raise minimum specific deductibles above the standard $20,000 seen in most enacted laws. This and other measures are intended to rein in self-insured plans, observers in the self-insured industry posit.

A Utah bill (which passed both Houses and needs just a governor’s signature) would require that stop-loss insurers cover incurred and unpaid claims if a small employer plan terminates — an unprecedented requirement. That bill passed both Houses and has been sent to the governor. However, stop-loss restrictions were ultimately removed from legislation in Minnesota in response to business concerns and a Rhode Island proposal was tabled for reconsideration. A California proposal, with draconian attachment points, is still in play.

Since state efforts to regulate self-funded plans are preempted by ERISA, states have gone after stop-loss as an indirect means of limiting self-funding, according to Mike Ferguson, chief operating officer of the Self-Insurance Institute of America. Poaching healthy lives from self-insuring health plans is seen as needed to make health reform work, by some proponents. “The common denominator [of proposals like these] is an effort try to push as many individuals and small businesses into health-reform exchanges” as possible, Ferguson said.

Utah’s Tough Plan-termination Provision

Utah’s H. B. 160 (latest version March 5) contains new stop-loss limits in a section called the “Small Employer Stop-loss Insurance Act.” Key provisions of the bill have raised unprecedented concerns in the stop-loss industry.

It would outlaw specific attachment points below $10,000 —that’s half of the $20,000 attachment point in the model act from the National Association of Insurance Commissioners. But that’s not the problem.

The problem is, Utah’s proposal would require that stop-loss insurers to cover incurred and unpaid claims if a small employer plan terminates. This provision doesn’t exist in regular stop-loss contracts. This is creating a chill factor in the market, according to attorney Adam Russo, The Phia Group, Braintree, Mass. At least one insurer has suggested that it may stop writing stop-loss policies in Utah unless someone can describe how that risk can be addressed, he said.

As of March 20, the bill had passed House and Senate votes and was sent to Gov. Gary Herbert (R) on March 21.

Utah’s bill will outlaw lasering, an insurer practice of carving out coverage for a specific individual in the employer group. Self-funded plans might be happy about the elimination of lasering, which left them exposed to unforeseen health expenses. The elimination of lasering also is in step with health reform’s no rescission rule, with which all self-insured plans must comply.

The bill also includes a provision requiring that stop-loss benefit limitations and exclusions be aligned with the small employer health plan’s limitations and exclusions. This would reduce situations in which plans are caught paying claims they expected the stop-loss insurer to cover, when a stop-loss insurer’s exclusions do not align with a plan’s exclusions.

Minnesota’s Stop-loss Legislation Stopped

Stop-loss legislation in Minnesota (included in a Feb. 18 version of H.F. 647) would have barred stop-loss insurers from issuing to any self-funded employer new stop-policies with specific deductibles below $60,000; with annual aggregate attachment points of less than 120 percent of expected claims (110 percent for companies with 50+ workers).

The stop-loss provisions were removed from the bill in late February due to business opposition, and do not appear in a revised March 13 version of H.F. 647. Therefore, at least for now, Minnesota’s current stop-loss limits remain in effect.  Those limits restrict specific deductibles to $20,000 and aggregate deductibles to the highest of 120 percent of claims, or $4,000 times the number of plan participants.

California’s Draconian Attachment Points

California’s stop-loss bill, S.B. 161 would impose draconian rules on stop-loss policies written for small employers with 50 or fewer employees. It would prohibit stop-loss policies written after Jan. 1, 2014, from having an individual attachment point for a policy year that is less than $95,000. It would require aggregate attachment points to be no lower than the greater of: (1) $19,000 times the total number of covered lives; or (b) 120 percent of expected claims. SIIA says that level would take away self-insurance as option for most, if not all, small businesses.

Last year, the same high levels were in legislation (S.B. 1431) but were removed.

Rhode Island

Rhode Island’s H 5459 would have prohibited stop-loss policies with annual specific attachment points of lower than $60,000 per individual. It would bar aggregate attachment points for small employers below the highest of $15,000 times the number of group members, or 130 percent of expected claims. Groups with 51 or more members could have an annual aggregate attachment point no less than 110 percent of expected claims.

On March 12, Rhode Island’s House Committee on Corporations recommended that the measure be held for further study. This was in response to testimony from one of the state’s largest self-funded employers, Ferguson told the Guide.