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Stop-Loss Coverage: Feds Have 13 Questions

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The three federal agencies in charge of implementing the federal Patient Protection and Affordable Care Act of 2010 (PPACA) want to know how small employers’ use of stop-loss programs, or insurance for self-insured health plans, affects the market for fully insured small group coverage.

The agencies — the Internal Revenue Service (IRS), an arm of the U.S. Treasury Department; the Centers for Medicare & Medicaid Services (CMS), an arm of the U.S. Department of Health and Human Services (HHS); and the Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department — are preparing to issue a 13-question request for information (RFI) about health plan sponsors’ use of stop-loss insurance.

The agencies are especially interested in learning about “the prevalence and consequences of stop-loss insurance at low attachment points,” agency officials say in a preliminary version of the RFI.

The stop-loss RFI is set to appear in the Federal Register Tuesday.

Members of the public will have 60 days after the official Federal Register publication date, officials say.


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 standards.

Actuaries, insurance company executives and others have suggested that differences between 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 most expensive individuals and groups..

Some employers fund their own health plans, rather than relying on conventional health insurers, but use stop-loss 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.”

A plan sponsor thinks of a stop-loss program attachment point roughly the same way an individual health insurance policyholder thinks of a health insurance deductible.

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.

The Self-Insurance Subgroup, an arm of the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., has been looking into arguments that dramatic expansion in the self-insurance market could destabilize the group health market starting in 2014.

At the NAIC’s spring meeting in New Orleans, regulators talked about the possibility that stop-loss sellers could increase interest in self-insuring even more by setting very low attachment points.


The federal agencies issuing the stop-loss RFI note that they have little data on stop-loss insurance.

Plans with 100 or more participants need not include information about matters such as attachment points in their annual Form 5500 plan reports, and smaller plans need not file the reports at all, officials say.

“The limited available information suggests that stop-loss insurance is perhaps becoming more common among smaller self-insured plans, but information is not available on the type of stop-loss coverage purchased by plans of various sizes,” officials say.

Officials estimate that about 23% to 27% of the self-insured plans that filed Form 5500 reports from 2000 to 2008 had stop-loss insurance and that about 28% to 29% of the partially insured Form 5500 filers had stop-loss.

In states without stop-loss attachment point minimums, the minimums could be as low as $5,000 per employee or $100,000 for a small group, officials say.

The federal agencies sending the RFI are asking the following questions: 

1. How common is the use of stop loss insurance in connection with self-insured
arrangements? Does the usage vary (and, if so, how) based on the size of the underlying
arrangement or based on other factors? How many individuals, if known, are covered
under stop loss insurance (either nationally or on a state-specific basis)? What are the
trends? Are past trends expected to be predictive of future trends? Is the Affordable
Care Act expected to affect these trends (and, if so, how)?

2. What are common attachment points for stop loss insurance policies, and what factors are
used to determine these attachment points? What are common attachment points by
employer size (e.g., for plans with fewer than 50, between 50 and 100, or between 100
and 250 employees, and how do these compare to attachment points used by larger
plans)? What are the lowest attachment points that are available? What are the trends?

3. Are employee-level (“specific”) attachment points more common, or are group-level (“aggregate”) attachment points more common? What are the trends? What are the common attachment points for employee-level and group-level policies?

4. How do insurers work with small employers to integrate stop loss insurance protection
with self-insured group health plans? What kinds of options are generally made
available? Are policies customized to meet the needs of different employers? How are
the attachment points for a stop loss policy determined for an employer? Do self-insured
group health plans purchase stop loss insurance anticipating that they will purchase it
every year?

5. For a given attachment point, what percentage of total medical costs incurred by the
employees is typically paid for by the employer and what percentage is typically paid for
by the stop loss insurance policy? How much do the relative percentages vary for
different attachment points? What are the loss ratios associated with stop loss insurance

6. What are the administrative costs to employers related to stop loss insurance purchased
for the employers’ self-insured group health plans? How do these costs compare to the
administrative costs related to purchasing a health insurance policy from an issuer?

7. Is stop loss insurance more prevalent in certain industries or sectors? Are there any
minimum employee participation requirements for a small employer to be offered stop
loss insurance?

8. What types of entities issue stop loss insurance? How many small entities11 issue stop
loss insurance policies?

9. Do stop loss issuers increase fees for groups below a certain size or exclude those
groups? If so, how?

10. How do stop loss insurers evaluate the plans seeking coverage and how is this evaluation
reflected in the coverage or premiums offered? Does the profile of the plan have an
effect on the attachment points available?

11. How do States regulate stop loss insurance? In States that are regulating this insurance,
what are the licensing processes and standards? Have States proposed laws, regulations,
or best practices with regard to stop loss insurance? Do such proposals focus on
attachment points, size of the group, percent of total claims paid by the stop loss insurer,
or other criteria? What are the issues States face in regulating stop loss insurance?

12. What effect does the availability of stop loss insurance with various attachment points
and other particular provisions have on small employers’ decisions to offer insurance to

13. What impact does the use of stop loss insurance by self-insured small employers have on the small group fully insured market?



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