Lately, there has been considerable concern about stop loss coverage. In a brief two-and-one-half page notice published in the May 1 Federal Register, the IRS, Department of Labor, and Department of Health and Human Services (the agencies regulating the Patient Protection and Affordable Care Act (“PPACA” or “health reform”)) requested information on 13 topics relating to stop loss coverage. On June 26, the National Association of Insurance Commissioners (“NAIC”) ERISA (B) Working Group considered revising the NAIC Stop-Loss Insurance Model Act (which states can use to update their stop-loss insurance laws) in a manner that would increase the minimum aggregate attachment point for stop-loss coverage from $20,000 to $60,000. The Self-Insurance Institute of America (“SIIA”) recently sent a letter to the NAIC opposing the proposed increase.
By way of background, stop loss coverage is a form of reinsurance that protects self-funded plan sponsors from high-dollar claim amounts from individual participants (“individual stop loss”) or from a high cost of claims from the plan as a whole (“aggregate stop loss”). The stop loss insurance has a particular point, called the attachment point, which the claims (either individually or in the aggregate) must reach before the insurer will reimburse the employer for the cost of claims.
The agencies professed to having very little information on, and several concerns relating to, stop loss coverage for self-funded plans, especially for small employers that do not hold health plan assets in trust. One concern of the federal agencies is that stop loss coverage with low attachment points could allow small employers to circumvent health reform. Self-funded plans are exempt from some (but not all) of the provisions of PPACA. For example, insured plans in the small group market will generally be required to cover specified categories of “essential health benefits” (which are still being defined). Self-funded plans, however, are not. Self-funded plans are also exempt from the medical loss ratio rebate requirements.
The agencies also worried that small employers with healthy employees could purchase stop loss coverage with attachment points so low that the stop loss insurance would effectively function as health insurance. For example, if a stop loss policy had an attachment point of $5,000, it would effectively be a very high deductible health plan.
On the other side, as reported by Bloomberg BNA, the SIIA argued that raising the attachment point would force smaller, self-insured employers to cut benefits because of the increased benefit costs they would incur with a higher stop-loss attachment point. The SIIA also noted that a small employer which chose to self-insure because its population was “healthy” could quickly have its population become “unhealthy” if a single employee developed a chronic or catastrophic condition.
The NAIC’s proposed model act would, if adopted by a state, effectively eliminate concerns about avoidance of PPACA’s insured plan mandates. As a practical matter, some states already prohibit stop loss policies with low attachment points (and California currently has such a law under consideration, which SIIA also opposes). Additionally, the agencies may consider action of their own to address this perceived “loophole” if they don’t like the answers to their questions.
This debate illustrates that there are a host of issues surrounding health reform that have yet to be resolved. It is important to note that resolution of these issues will not depend entirely on recommendations such as those under consideration by the NAIC, as states do not always adopt the NAIC recommendations in their recommended form or, may choose to make additional changes to their stop loss insurance laws beyond those recommended by the NAIC.