Sen. Olympia Snow, R-Maine

Sens. Olympia Snowe, Michael Enzi and Tom Coburn are objecting to the possibility that the Obama administration might try to change the rules governing self-insured employer health plans that use stop-loss arrangements.

The Republican senators are defending self-insured employers’ use of stop-loss coverage in a comment letter submitted in response to an administration request for information (RFI) on the stop-loss market

“Please explain the statutory authority you are asserting in pursuing a potential change in federal rules relating to stop loss insurance for self-insured plans,” the senators say. “Given all of the regulatory uncertainty created by the new health care law that is plaguing employers and health plans, why did the Administration deem it necessary to pursue this RFI pertaining to a subject over which Congress did not grant the executive agencies legislative or regulatory authority?”

But some state regulators wrote to point out that their states already impose rules on the stop-loss market that govern, for example, how small a stop-loss arrangement can be.

“In Maryland, the minimum attachment points for stop loss insurance ($10,000 for specific, 115% of expected claims for aggregate) are established by statute,” says Maryland Insurance Commissioner Therese Goldsmith.

The U.S. Treasury Department, the U.S. Labor Department and the U.S. Department of Health and Human Services issued the stop-loss RFI in May.

The stop-loss RFI attracted 79 responses, including responses from insurers, insurance agents, regulators and trade groups.

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 through the exchanges.

Some employers, including many large employers, operate their own self-funded health plans rather than relying on conventional health insurers. Some of those self-insured employers use stop-loss arrangements — insurance 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.

A stop-loss program may cover a health plan for claims over a specified “attachment point.”

For a plan with stop-loss protection, the attachment point is to the plan roughly what a health insurance policy deductible would be to the holder of an individual health insurance policy.

PPACA exempts self-insured employers from many PPACA requirements.

Some health policy watchers have suggested that small employers with younger, healthier employers may try to avoid complying with the PPACA requirements by self-insuring. A flight to self-insurance by healthy small groups could weaken PPACA protections for the consumers in those plans and lead to antiselection in the insured small group makret, some PPACA supporters say.

In the RFI, federal officials ask a number of questions about use of stop-loss insurance by small groups, such as “What are common attachment points for stop loss insurance policies?”

THE LETTERS

Snowe, Enzi and Coburn say in their letter that they are concerned about the effect of any changes in federal stop-loss rules on small business’ ability to continue to be effectively self-insured.

“We remain committed to ensuring all employers maintain maximum flexibility in choosing benefit structure that best meet the needs of employers and their employers,” the senators say. “This kind of insurance is critical for operating a predictable, affordable self-insured health plan. Any possible disruption of these services is of paramount concern to lawmakers, employers, and tens of millions of plan participants.”

Michael Ferguson, chief operating officer of the Self-Insurance Institute of America (SIAA), Simpsonville, S.C., says in an SIAA comment letter that the stop-loss market has been relatively stable and that stop-loss providers have not rushed to provide stop-loss arrangements for very small self-insured plans. 

Only 13% of small employers are self-insured, and many of the self-insured plans that now have less than 50 lives originally started with more enrollees, Ferguson says.

Stop-loss arrangements with attachment points under $20,000 are rare, and about half of all states already do have stop-loss rules, Ferguson says.

“Approximately half the States have some type of regulation of a minimum specific and/or aggregate corridor or a limitation by group size,” Ferguson says. “It is SIIA’s legal opinion that such regulations are preempted by ERISA as they directly affect a plan-sponsor’s decisions on plan design.”

But SIAA’s view is that imposing restrictions on small groups’ ability to self insure will not help reduce antiselection in the insured small group market.

The current typical minimum attachment point is already $20,000 “since the frequency of claims below such a threshold is greater than what is supported by the stop-loss carrier’s catastrophic claim model,” Ferguson says.

Jeff Miller, a vice president in the Columbia, S.C., office of HUB International, says he has heard of some plans with as few as 15 employees successfully using self-funding. 

Miller says he thinks the current stop-loss systems forces providers of traditional insurance to dig deeper and work harder to retain business.

“If an employer is able to continue providing health benefits because they have obtained more control of how their plan is designed, and it better fits the needs of their individual employee population, that seems like a beneficial thing to me,” Miller says.