Maryland Stop-Loss Bill Seen As Limiting Choices

By Cyril Tuohy
InsuranceNewsNet

A bill pending in the Maryland Legislature that would raise deductibles for self-insured small businesses has opponents and some business groups fuming that they will have fewer choices with which to cover their employees.

A decade ago, when small businesses could find group coverage at a reasonable price, such a proposal might have gone unnoticed.

But since passage of the Affordable Care Act (ACA) and the era of unlimited lifetime maximums, pressure on self-insured companies to protect themselves from catastrophically severe claims has increased. This means that any attempt to restrict access to stop-loss coverage is seen as bad news.

Stop-loss experts say the ACA’s unlimited lifetime maximum payments for underlying medical plans will lead to higher-severity claims, and ACA employer health insurance mandates will lead to the expansion of covered lives.

Self-insured businesses buy stop-loss coverage to protect themselves against catastrophic claims, claims so large that they threaten the financial solvency of a company. But in Maryland, a lawmaker has proposed raising the deductible for self-insured employers to $40,000 before medical stop-loss coverage kicks in.

Under Maryland law, self-insured businesses with an average of 50 employees must reach a minimum threshold of $10,000 before triggering stop-loss coverage.

Business groups are against the bill backed by CareFirst BlueCross BlueShield, the state’s largest health insurer.

Preventing more businesses from leaving the fully-insured small group market avoids what the industry calls “adverse selection.” This is a situation in which there are not enough young, healthy lives to offset less healthy, often older and typically more costly lives in the risk pool.

“I think at the end of the day, as policy makers, we have to decide how valuable is the small group and I would say to you it’s very, very important,” the bill’s sponsor, State Sen. Thomas M. Middleton, said in an article published in the Washington Business Journal earlier in March.

The National Federation of Independent Businesses has come out against the bill. In addition, Mike McMullin, president of the Carroll County Chamber of Commerce, said the bill would “essentially eliminate small group self-funding” as an employer option for health benefits.

“Limiting options is not in the best interest of businesses in the state of Maryland,” McMullin said in written comments opposing the bill.

Insurance brokers and financial advisors also say the bill will limit the insurance choices available for small businesses even if the bill has little impact on national stop-loss carriers.

Brad Nieland, vice president of stop-loss for Sun Life Financial, said that raising the deductible will make it more difficult for business owners who choose to self-insure to provide coverage for workers. Medical coverage helps small businesses attract qualified employees.

“We view the increase to $40,000 as essentially limiting choice to small employers,” Nieland told InsuranceNewsNet. Sun Life Financial, a top carrier of stop-loss benefits in the U.S., has more than $1 billion in in-force stop-loss premium.

“Putting limits on deductible is a form of regulating stop-loss,” Nieland added. “It limits the ability of employers to buy stop-loss, and I do think it’s an attempt at regulation.”

It’s not clear how many estimated businesses would elect to drop coverage if the bill were passed and signed into law.

An analysis by the Department of Legislative Services of the Maryland General Assembly shows that for groups of 50 or fewer covered employees, the median stop-loss deductible was $30,000. For groups of 51 to 100 employees, the median deductible was $45,000.

Raising the deductible means small businesses take on more risk in electing to cover their employees, but businesses that decide to offer coverage also could end up paying lower stop-loss premiums, the legislative analysts found.

Bryson Popham, a lobbyist representing the Maryland Association of Health Underwriters and the National Association of Insurance and Financial Advisors-Maryland, told Washington Business Journal that to “adopt a bill this far reaching  without examining the consequences, both intended and unintended, is something the general assembly rarely does.”

For many businesses, self-insurance is often cheaper than pursuing coverage in the fully-insured market and many large companies resort to self-insurance because they have the financial resources to pay the claims.

But for cash-strapped small businesses, where cash flow is considered the lifeblood, higher deductibles entail a financial sacrifice, just as a driver might take on more risk by raising the collision deductible from $500 to $1,500 per accident, even if it means lower premiums.

Self-funding has traditionally been limited to 8 percent to 16 percent of companies with between one and 100 full-time employees, according to Robert C. Pozen, a senior fellow in economic studies with The Brookings Institution.

Pozen says in a blog post that in the future, “these statistics may change dramatically” as the ACA creates new incentives for small companies to self-fund their health care plans.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.