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Federal regulators eye restrictions on stop-loss coverage
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The House Subcommittee on Health, Employment, Labor and Pensions (HELP)
held a hearing on Feb. 26, 2014, to examine the benefits of self-insured health plans and to discuss concerns about regulating stop-loss insurance at the federal level.
Unlike companies with fully insured health coverage, employers that manage self-insured health plans pay directly for their workers’ health care claims and services, although they are likely to contract with a third-party administrator (often an insurance company) to process claims and benefit payments. Self-insured plans provided insurance to 61 percent of all U.S. workers covered by an employer-sponsored health plan in 2011, up from 41 percent in 1998, according to the nonprofit Employee Benefit Research Institute.
Birth of a Controversy
Significantly, self-insured employers are exempt from some of the coverage mandates and related requirements under the Affordable Care Act (ACA). For instance, self-insured small group plans are not required to offer
10 essential health benefits under the ACA, whereas fully insured, nongrandfathered small group plans must fulfill this mandate if they provide health coverage at all. Self-insured plans also are not obligated to provide
medical loss ratio rebates and are not subject to the ACA's modified community-rating rules, among other provisions.
Some organizations view self-insurance as a way to avoid additional costs under the ACA. In light of this, the federal agencies overseeing health care reform announced in
a May 2012 notice in the
Federal Register, "This practice [self-insurance], if widespread, could worsen the risk pool and increase premiums in the fully insured small group market." The agencies noted that because self-insured employers are likely to purchase stop-loss insurance to protect against catastrophic claims and high costs, they “were considering regulations to discourage small and midsize employers” from using this type of insurance to circumvent the new health care law.
This has not sat well with House Republicans, who used the hearing to highlight their concerns.
"Support for self-insurance has grown because it can be tailored to the needs of the workforce and offers transparency to ensure the plan is managed in an efficient and effective way," noted HELP subcommittee Chairman Phil Roe (R-Tenn.)
in his opening statement. "Just as important, self-insurance helps control health care costs, which can lead to higher wages for workers and more resources for employers to invest in job creation."
Roe added, "The administration must clarify its plans to potentially regulate in this area and explain the legal basis it has to do so."
Among those appearing before the subcommittee to support employers' use of self-insured plans was Michael Ferguson, president and CEO of the Self-Insurance Institute of America, a trade group. "Some health-care-market observers contend that policymakers should be concerned about employers switching to self-insured health plans and purchasing medical stop-loss insurance in order to 'dodge' requirements and fees applicable to fully insured health plans as provided for by the ACA,"
testified Ferguson. But he argued that, "of the few ACA health-care-market reforms that do not apply to nongrandfathered self-insured health plans, there are specific reasons why." He cited one: "As self-insured plans are essentially nonprofit entities with the fiduciary requirement to use plan assets for the exclusive benefit of plan participants, there is no 'profit margin' to regulate."
Despite the advantages of self-insurance, "the administration may make this option more difficult by restricting the availability of stop-loss insurance," Ferguson warned. "Specifically, it is believed that the federal agencies may 'interpret' the definition of health insurance coverage to include stop-loss insurance."
To avoid this, Ferguson said his organization was supporting H.R. 3462, the proposed Self-Insurance Protection Act, which would amend the definition of "health insurance coverage" under the Public Health Services Act and parallel sections of the Employee Retirement Income Security Act and the tax code to clarify that stop-loss insurance is not health insurance, "in order to prevent overly creative interpretation of the federal statute by regulations."
"Self-insurance is not a panacea—there are real risks for both employers who choose to self-insure and their employees,"
countered Maura Calsyn, director of health policy at the Center for American Progress, a liberal policy institute. The Affordable Care Act, she noted, "spreads risk among all small employers" and "prohibits practices that formerly priced older and sicker groups out of the health care market." However, "if businesses with healthier employees decide to leave the fully insured market en masse, these changes will not help businesses that remain in that market."
a study by the Commonwealth Fund that found that without further regulation that limits the use of stop-loss policies, an increasing number of small businesses are likely to self-fund, "leaving mainly older, more costly employees in the fully funded small-group market. This could increase premiums in the small-group market by up to 25 percent," would could lead even more small businesses to shift to self-insurance or drop employer-provided health coverage altogether.
Concluded Calsyn, "without a stronger regulatory framework for the self-insured market or limits on stop-loss insurance, this is a significant risk."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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