(AP Photo/Denis Poroy)

The Self-Insurance Subgroup is looking into arguments that dramatic expansion in the self-insurance market could destabilize the group health market starting in 2014.

The group, part of the Health Care Reform Actuarial Working Group at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., gave the working group’s parent, the Health Actuarial Task Force, an update on its work at the NAIC’s recent spring meeting in New Orleans.

If insurers make stop-loss programs too attractive to very small employers, then the healthiest small groups may decide to self-insure, subgroup members say in a summary of their work prepared for the task force.

If that prediction comes true, “sicker groups would obtain coverage through the exchanges, which may create selection against the exchanges that results in increases in exchange premiums,” the subgroup members say.

PPACA AND THE STOP-LOSS MARKET

The Patient Protection and Affordable Care Act of 2010 (PPACA) is supposed to create a new system of health insurance exchange — Web-based health insurance supermarkets — starting in 2014.

If PPACA takes effect on schedule and works as expected, individuals and small groups will be able to use new tax subsidies to buy health coverage that meets exchange quality standards.

Actuaries, insurance company executives and others have suggested that differences between the rules and practices in different sectors of the health insurance market could lead to “antiselection,” or the risk that the healthiest individuals and groups will flock to some types of plans and leave other types of plans saddled with the individuals and groups that generate the most claims.

Some employers fund their own health plans, rather than relying on conventional health insurers, but use “stop-loss plans,” or insurance plans for health plans, to limit their exposure to catastrophic claims, such as huge claims for organ transplants or a large number of big claims resulting from a flu epidemic. Stop-loss programs cover health plans for claims over a specified “attachment point.”

Traditionally, most sponsors of self-insured health plans have been relatively large employers.

Today, PPACA has created new interest in self-insured plans, because PPACA exempts self-insured employers from many of the new PPACA rules and mandates.

Stop-loss sellers could increase interest in self-insuring even more by setting very low attachment points, Self-Insurance Subgroup members say.

The NAIC Stop Loss Insurance Model Act now sets attachment points based on the results of a study conducted in 1995, subgroup members say.

“The subgroup will update the attachment points to reflect more recent experience,” the subgroup says. “A consultant is needed to have access to a credible volume of major medical claims.”

The subgroup also wants to estimate the effects on exchange premiums if regulators shut small employers out of the stop-loss market, the subgroup members say.