If a state lets small employers use stop-loss policies to back up self-insured health coverage, regulators should make sure the employer sponsors understand the risks they are assuming.
Members of the ERISA Working Group, an arm of the National Association of Insurance Commissioners (NAIC), talk about the stop-loss traps unsophisticated small employers could face in a draft paper on small employer self-insurance. The working group is asking for public comments on the draft.
The working group began developing the draft because of reports that some benefits advisors were suggesting that small employers could use self-insured plans backed by stop-loss policies, or insurance for health plans, to escape from many of the Patient Protection and Affordable Care Act (PPACA) mandates that now apply to small insured groups. Supporters of PPACA fear that the workers in the small self-insured plans will end up with bad coverage. PPACA supporters also fear that self-insurance will appeal to employers with younger, healthier workers, leaving issuers of insured small-group plans with older, sicker enrollees.
For state insurance regulators, another concern is that small employers may not fully understand the responsibilities they take on if they self-insure, according to the paper drafters. “Most stop-loss insurance policies contain explicit statements that the stop-loss insurer is not the plan fiduciary, but the policy does not define what a fiduciary is,” the drafters say.
“The cost of these arrangements is not always immediately apparent from the policy itself,” and, in some cases, the stop-loss policy may have limits and exclusions that conflict with the PPACA standards or state standards that apply to the self-insured plan’s obligations to the enrollees, the drafters say. A stop-loss policy might impose a $1 million limit on the amount of benefits it will pay to the employer, or the stop-loss policy may allow for rescission of the policy on the basis of any mistake by the employer or an employee, officials say. PPACA, meanwhile, requires a self-insured plan to provide unlimited coverage for essential health benefits for an enrollee, and it forbids a plan from using rescission except in cases involving fraud or intentional misrepresentation of a material fact.
“Any rescission leaves an employer exposed to great risk, and all employers should be aware of all rescission provisions and the impact on the solvency of their self-funded health plan,” the drafters say.
Similarly, many stop-loss policies have very strict rules requiring immediate reporting of any possible or even suspected large claims, the drafters say. In some cases, even failing to report claims before the claims have incurred may lead to the nullification of the stop-loss policy, the drafters say.
The drafters suggest that regulators consider developing new stop-loss standards and possibly asking legislators for more authority to disapprove worrisome policy provisions. “Most state insurance departments already have broad authority to disapprove any policy provision that is misleading, deceptive or misrepresents the risk purported to be assumed,” the drafters say.