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Consumer Reps: PPACA Does So Change the Small-Group Market

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Timothy Jost and others who represent consumers in proceedings at the National Association of Insurance Commissioners (NAIC) are scoffing at the idea that the Patient Protection and Affordable Care Act of 2010 (PPACA) will have little effect on the small-group health insurance market.

The NAIC consumer reps talk about how they see PPACA affecting the small group market in a comment on efforts to update the NAIC Stop-Loss Insurance Model Act of 1995.

Some are arguing that states or federal agencies should impose new minimum size limits on the stop-loss market, to keep small groups from using stop-loss programs to evade new PPACA insurance rules.

The ERISA Working Group, a part of the NAIC’s Health Insurance and Managed Care Committee, has posted the consumer reps’ comments and other stop-loss model update comments in the working group’s section of the NAIC website.

The working group plans to convene Aug. 11 in Atlanta, at the NAIC’s summer meeting.


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.

State insurance regulators oversee the stop-loss market. The NAIC has some influence over the state stop-loss rules through the 1995 stop-loss model.

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, and 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.

Stop-loss market advocates and employer groups have argued that the small and midsize stop-loss plans now in the market tend to have lower administrative costs than insured plans and richer benefits, and that putting new, PPACA-related restrictions on self-insurance plans and stop-loss insurance could backfire, by increasing the cost of small and midsize group plans and reducing employers’ and workers’ access to the type of high-quality coverage they now enjoy.

The Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, and other federal agencies put out a request for comments on the matter in April.

Members of the NAIC’s Self-Insurance Subgroup have said they think an outside report done by actuaries in the Chicago office of Milliman Inc., supports the idea of increasing the amount of risk that a small employer that uses stop-loss insurance must keep before the stop-loss insurance kicks in.

Will Anything Really Change?

The ERISA Working Group is one of several arms of the NAIC looking at stop-loss market rules.

Jost and the other consumer reps note in their comment letter that commenters who oppose new stop-loss rules have raised procedural questions, such as whether the ERISA Working Group has the authority to look at the matter; whether updating the 1995 model act would be the right way to adjust stop-loss attachment points, if any adjustments are needed; and whether the stop-loss industry has enough chance to respond the stop-loss proposals under consideration.

The consumer reps note that opponents of changing the model also say changes are unnecessary because, in their view, PPACA “does not make major changes in the small group market.”

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) “prohibits group insurance from health status discrimination within groups and that all states limit small group underwriting and a few require some form of community rating in small group markets,” the consumer reps write.

“The [PPACA] goes further, however, by prohibiting health status and gender underwriting in small group market, limiting age rating, and imposing market wide risk pooling and risk adjustment requirements,” the reps say. “These requirements do not apply to stop-loss insurers.”

Today, the reps say, “a healthy small group that chooses to self-insure faces the risk that if its experience deteriorates it will face much higher renewal rates in both the insured and stop-loss market.”

Under the rules set by PPACA, “a group whose experience deteriorates would still likely face higher renewal rates in the stop-loss market,” the reps say.

But the group with the deteriorating experience could then get coverage through the “health insurance exchange,” or Web-based health insurance supermarket, that PPACA is supposed to create, the reps say.

The small group could then buy insurance at a standard rate set on a community basis, rather than a rate based on the small group’s claims, the reps say.

“A clearer invitation to cherry picking and adverse selection is hard to imagine,” the reps say. “This situation has been recognized by insurance advisors. A recent article, for example, advises employers: ‘You should certainly review your past claims experience over the last several years. If your claims have been low, self-insurance may make sense. You should also examine your employee demographics. For example, if your employees are mostly young and healthy, it might be cost effective to self-insure their health-care expenses.’”

State regulators also are acknowledging that a likelihood of adverse selection exists, the reps say.

Some PPACA consumer protection rules apply both to insured and self-insured plans, but the PPACA essential health benefits rules, which describe what benefits must be offered by a plan, and the PPACA minimum medical loss ratio (MLR) rules and health insurance cost increase review rules do not apply to self-insured plans, the reps say.

“An employee enrolled in a self-insured small group will receive significantly less protection under the [PPACA] than one covered by a fully-insured group,” the reps say.

The reps say they think issuing guidelines on stop-loss attachment points would be an appropriate response to the adverse selection risk.


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