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Financial Planning > Tax Planning > Tax Loss Harvesting

2013: Stop-loss

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crystal ball

At my company — a company in the health plan stop-loss business — we anticipate that 2013 will be a year of both great opportunities and great challenges for the stop-loss market.

These will be driven by the implementation of health care reform under the Patient Protection and Affordable Care Act (PPACA), as well as the continued need to provide solutions that control medical costs while promoting wellness and quality care.

Stop-loss insurance is an arrangement a self-insured employer plan uses to protect itself against catastrophic claims risk.

In 2012, we started to see an increased level of interest in self-funding and stop-loss on the part of small- to medium-sized groups that are currently fully insured. These employers have a heightened awareness that, in order to be able to continue to provide benefits at an affordable cost, they need to consider self-funded alternatives that offer the flexibility and innovative health care management tools necessary to control costs.

We expect this trend toward self-funding to continue to grow as we move into 2013. That move toward self-funding should result in an opportunity for significant growth in the stop-loss market.

This opportunity will require stop-loss carriers to develop new and creative approaches to mitigate the concerns that previously had prevented smaller employers from committing to self-funding. Minimizing gaps in coverage and educating brokers new to self-funding and stop-loss will be crucial. New approaches, such as use of group captive insurers, will help these employers enjoy the financial benefits of self-funding while retaining some of the “safety in numbers” security they enjoyed while fully insured.

The stop-loss industry will also face two major challenges in 2013.

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The first challenge is ever-increasing pressure to control costs.

PPACA is eliminating annual and lifetime health plan benefit caps, and PPACA and federal budget constraints could lead to cuts in what Medicare and Medicaid plans pay providers. We expect to see increased pressure by providers to shift costs to the commercial sector, including self-funded employers. This will likely exacerbate the ongoing battle to hold hospital reimbursements to the “usual and customary rate” (UCR) levels.

The other challenge to the stop-loss industry will be regulatory pressure.

The increased regulatory focus on the stop-loss industry began in 2012, with proposed changes to the National Association of Insurance Commissioners (NAIC) Stop Loss Model Act and, in California, California Senate Bill 1431.

While the NAIC changes were voted down at the NAIC fall meeting and California S.B. 1431 has been tabled, it is very likely that attempts to increase regulation of stop-loss will only increase in 2013.

As an industry, we will be pressed to educate regulators and politicians so that ill-advised regulatory requirements that would restrict the ability of employers to buy suitable stop-loss protection, and thus to deny employers the opportunity to remain self-funded, are not imposed.