Small Businesses Consider Self-Insured Health Plans

Aug. 14--You wouldn't think a discussion about stop-loss insurance would produce "spirited" debate, but that's allegedly what transpired this weekend when the National Association of Insurance Commissioners met to deliberate on the issue -- its effect on the health insurance marketplace, on federal health care reform and, most especially, on small businesses.

There's a reason most small businesses -- those with 50 or fewer employees -- don't directly pay the health care expenses of their employees -- it's too risky. Instead, small companies that offer employee health coverage purchase group policies from health carriers, allowing the insurer to assume the risk.

But some insurers and the brokers that sell on their behalf are trying to change that, wooing smaller companies with 50 or fewer employees into the universe of "self-insured" businesses by offering ancillary stop-loss policies, which critics say is meant to sidestep federal health care reform measures and could result in higher health care premiums.

"The insurance companies have found a way around the [Affordable Care Act]," especially in states like Pennsylvania where the stop-loss market is largely unregulated, said Timothy Jost, health law professor at the Washington and Lee University law school.

Insurers, meanwhile, say they are simply responding to a segment begging for affordable insurance solutions.

First, some background: In the world of employer-provided health insurance, there are generally two types of companies -- those big enough, with enough risk predictability, to insure themselves and pay their own claims; and those smaller and midsized companies that buy coverage from commercial carriers.

The two types are known as the "self-insured" and the "fully insured," and historically, smaller companies gravitate toward the second classification. They don't insure themselves -- essentially, this means setting aside money to cover their employees' health claims -- because, with too few employees, a couple of major illnesses or surgeries could be financially calamitous.

Or so the conventional wisdom goes. These are unconventional times, though, and with federal health overhaul measures taking effect and a new online insurance marketplace set to be operational in 2014, smaller companies are taking a second look at self-insurance.

Self-insurance becomes possible when a company also buys "stop-loss" insurance. In this case, stop-loss is an insurance policy that pays out in the event that a company's health claims exceed what has been set aside to pay for benefits in a given year.

But some experts are concerned that insurance companies, in trying to win new business, are offering stop-loss coverage at artificially low prices by poaching the healthiest of small groups.

The "artificially" low price comes in the form of a stop-loss policy with a low "attachment point," or the dollar figure, per company or per employee, at which an employer stops bearing risk and paying claims, and the stop-loss insurer takes over.

In other words, the insurers would still be determining who to cover based on health history and risk factors, but because they are selling stop-loss insurance, this type of coverage isn't regulated by the Affordable Care Act, or by most states.

Less-healthy small groups could be dumped into the more strictly regulated exchange marketplace, lifting premiums for everyone. And if a once-healthy small group turns into a bad bet with too many big claims, the insurer could then steer the company back into the exchanges. Stop-loss policies -- unlike commercial health insurance policies -- do not carry a "guarantee of a renewal" quote.

If younger or healthier groups self-insure, "all those prices will jump up," because the risk and cost will be spread less broadly, said Mark A. Hall, a professor of law and public health at Wake Forest University.

Insurers, as well as the brokers that sell the products and stand to make bigger commissions on them, differ on the practice -- many nonprofit Blue Cross Blue Shield insurers are against offering stop-loss insurance to small groups. One of Highmark Inc.'s subsidiaries, Highmark Casualty Insurance Co., offers stop-loss products only to groups of 100 or more.

Connecticut-based Cigna offers stop-loss policies to groups as small as 25, and grew its stop-loss business 17 percent between the first quarter of 2011 and 2012.

Not only do some insurers do see the potential for new customers, they also see the potential for new profits.

In selling a typical health insurance plan to a small employer, the amount of profit an insurer could make is now bound by the Affordable Care Act's new medical-loss ratio rules: Of the money an insurer makes in the form of premium revenues, 80 percent must be paid out in claims for a small-group or individual policy. The point is to cut down on health insurers' profit and overhead.

Stop-loss policies, on the other hand, are not bound by loss-ratio limits.

The threat of higher premiums and the "poaching" of healthy small groups via aggressive stop-loss pricing has led to calls for regulations. In June, a coalition of health advocates, consumer group and labor unions sent a letter to the U.S. Department of Health and Human Services, saying, "We are concerned [with] early indications, including Internet advertisements, that insurers and benefits advisors are aggressively marketing stop-loss insurance to small employers as a means to evading consumer and market protections [under] the Affordable Care Act."

The letter asks the federal government to write new regulations that would better define how stop-loss plans are marketed and under what conditions small employers can self-insure. The letter came in response to a May request from HHS, the Treasury, and the U.S. Department of Labor asking for information about the stop-loss market, "with a focus on the prevalence and consequences of [low] attachment points."

Cigna also responded to that call, said spokeswoman Amy Turkington. "In our view," she said, "the goals of increased accessibility, improved quality, and reduced costs are furthered when consumers have choice ... whether through employer or individual markets. Stop-loss insurance has been very successful in providing these benefits, and in opening an entry point for many Americans who would not otherwise be offered health insurance through their employer."

The National Association of Insurance Commissioners which met in Atlanta last weekend, discussed the issue at length, but put off a vote on proposed revisions to its stop-loss model legislation.

A pro-stop-loss group, the Self-Insurance Institute of America, says it's "disconcerting that [proposed] legislation would severely limit health care options for small businesses."

The proposed legislation in question is a California Senate bill that would increase the minimum "attachment point" contained in stop-loss policies.

Absent federal guidance, about 20 states have either gone the California route or banned the sale of stop-loss insurance to small employers.

Pennsylvania is not one of them, although Pittsburgh, partly because of the extreme pricing competition on conventional policies among the insurers active here, hasn't seen much marketing of stop-loss plans.

Bill Toland: [email protected] or 412-263-2625.

___

(c)2012 the Pittsburgh Post-Gazette

Visit the Pittsburgh Post-Gazette at www.post-gazette.com

Distributed by MCT Information Services