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S.B. 1431: California Senate Passes Small Group Stop-Loss Bill

By Allison Bell

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The California Senate voted 24-13 Thursday to pass S.B. 1431, a bill that could regulate carriers ability to sell stop-loss arrangements — insurance for self-insured health plans — to employers with 2 to 50 lives.

The California Assembly now must decide which committees will have jurisdiction over consideration of the bill there.

Employers use self-funded plans in an effort to get more control over health benefits and reduce their cost.

In California, about 30% of employers with self-funded plans use stop-loss arrangements in an effort to limit possible plan losses, according to California Senate legislative analysts.

A typical stop-loss arrangement begins to make payments to a covered employer when losses reach a designated “attachment point.”

The amended version of S.B. 1431 that passed in the Senate states that a stop-loss arrangement sold to a California group with 2 to 50 lives would have to have an attachment point set at a figure equal to at least 120% of the expected claims.

Senate legislative analysts say S.B. 1431 also would:

  • Require a stop-loss carrier to offer coverage to all employees and dependents of a small employer.
  • Prohibit the stop-loss carrier from excluding any employee or dependent based on actual or expected health factors.
  • Exempt multiple employer welfare arrangements (MEWAs) from any provisions of the bill.

S.B. 1431 was sponsored by the California Department of Insurance and introduced by Sen. Kevin de Leon, D-Los Angeles.

The bill is based in part on a model developed by the National Association of Insurance Commissioners, Kansas City, Mo., according to theCalifornia Senate analysts.

The Patient Protection and Affordable Care Act of 2010 (PPACA) exempts self-insured plans from many of the new PPACA plan rules that have already started to take effect or are set to take effect in 2014. Both defenders and critics of PPACA have suggested that some small employers might try to avoid PPACA requirements by replacing fully insured plans with a combination of self-insured plans and stop-loss arrangements.

PPACA supporters argue that letting small groups self-insure could expose the small groups to new complications and risks and lead to adverse selection by luring younger, healthier groups away from the pool of groups in insurance plans subject to PPACA.

Critics say the bill could limit small employers’ coverage options and lead some to drop health benefits altogether.

In California, stop-loss restriction supporters include consumer groups and two nonprofit California health carriers — Blue Shield of California, San Francisco, and Kaiser Permanente, Oakland, Calif.

Opponents include the California arm of WellPoint Inc., Indianapolis (NYSE:WLP); the California Association of Health Underwriters, Sacramento, Calif.; the Association of California Life and Health Insurance Companies, Sacramento; the Self-Insurance Institute of America Inc., Simpsonville, S.C.; the California Chamber of Commerce, Sacramento; and the National Federation of Independent Business, Nashville, Tenn., state Senate analysts say.

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