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PPACA: Milliman Analyzes Low-Deductible Stop-Loss

By Allison Bell

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State insurance regulators and others are still thinking about whether states, federal agencies, someone else, or no one should put new limits on small employers’ use of stop-loss arrangements. 

The Health Actuarial Task Force at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., has included a copy of a report on the topic by actuaries in the Chicago office of Milliman Inc. in a packet of materials prepared for an upcoming task force meeting.

Frank Horn, chair of one arm of the task force, the Self-Insurance Subgroup, says in a memo that the Milliman stop-loss analysis may support the idea increasing the minimum levels of risk that small employers must keep when using stop-loss coverage.

Employers that self-insure often buy stop-loss insurance — insurance for group health plans — to limit their losses. A stop-loss program might include a “specific attachment point,” or per-employee deductible, and it might also include an “aggregate attachment point,” or whole-plan deductible.

Individual states regulate use of stop-loss insurance within their borders. The NAIC has no control over states’ stop-loss rules, but it has indirect influence over the rules through a Stop-Loss Insurance Model Act that was approved in 1995. Only 3 states — Minnesota, New Hampshire and Vermont — have adopted the Stop-Loss Insurance Model as a whole, and 18 other states have implemented related laws or regulations, according to the Milliman actuaries.

For an employer group with 50 or fewer people in it, the Self-Insurance Subgroup thinks the minimum recommended per-employee deductible should increase to $60,000, from $20,000 today, Horn says.

The subgroup thinks the recommended minimum whole-plan deductible should increase to $15,000 times the number of people in the plan, from $4,000 times the number of people in the plan today, Horn says.

The Employee Retirement Income Security Act (ERISA) has exempted self-insured plans from the state benefits requirements that apply to fully insured group health plans. The Patient Protection and Affordable Care Act of 2010 (PPACA) now exempts self-insured plans from having to meet many of the new PPACA requirements.

Some PPACA watchers have suggested that small employers may try to use self-insured plans and stop-loss programs with low attachment points to avoid having to comply with PPACA.

The Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, and other federal agencies are reviewing responses to a 13-question request for information (RFI) on stop-loss that was released in April.

Before the Self-Insurance Subgroup hired Milliman to look at stop-loss insurance, the NAIC had been relying on a stop-loss market analysis prepared by Coopers & Lybrand  in 1994, Horn says.

The Health Care Reform Actuarial Working Group, another arm of the NAIC’s Health Actuarial Task Force, has asked yet another arm of the task force, the ERISA Subgroup, to update the attachment points in the 1995 stop-loss model to reflect recent claims experience, the Milliman actuaries say in their report.

The actuaries say they analyzed employer risk by developing a set of equations that describes how a plan might perform in various conditions, then seeing how the plan would perform in thousands of different scenarios.

The actuaries came up with calculations for expected claims, expected per-employee stop-loss claims, and expected whole-plan claims at the kinds of typical small group plans that might be available when PPACA tooks effect.

PPACA calls for plans to provide coverage at “platinum,” “gold,” silver” and “bronze” levels of actuarial value, and Milliman generated results for those 4 categories of plans.

The government itself seems to be assuming that a silver plan will be the standard plan, and the Milliman actuaries found that, if a plan had only a per-employee deductible and not a whole-plan deductible, it could up ceding 46% of claims with a $20,000 per employee stop-loss deductible, 22% with a $60,000 per employee stop-loss deductible, and 6% with a $200,000 per employee stop-loss deductible.

The probability that any one silver plan member will have a high-dollar claim may be 3.34% for a $20,000 cut-off, 1.14% for a $50,000 cut-off, and 0.98% for a $60,000 cut-off, the actuaries found.

In 1994, Coopers & Lybrand found that the probability of a plan member incurring a claim over $20,000 was just 0.85% for one sample population and 2.43% for another sample population.

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