House Education & Workforce Committee Issues Report on Self-Insurance Protection Act
Here are excerpts:
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Purpose
H.R. 2813, the Self-Insurance Protection Act, amends the Employee Retirement Income Security Act of 1974 (ERISA)/1/ to clarify that federal regulators cannot redefine stop-loss insurance as traditional health insurance in order to preserve the option of self-funding. The bill also prohibits states from regulating stop-loss insurance if regulations make stop-loss insurance inaccessible to employers. By providing legal certainty, the bill will help ensure workers and families continue to have access to affordable, flexible self-insured health plans.
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/1/29 U.S.C. Sec.
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Committee Action
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Committee Views
INTRODUCTION
Background on employer-sponsored insurance coverage
Since World War II, employers have offered health care benefits to recruit and retain talent and to ensure a healthy and productive workforce. Employer-sponsored health insurance is one of the primary means by which Americans obtain health care coverage. Almost 159 million American workers and family members are covered by a health benefit plan offered by an employer./2/ The
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/2/Kaiser Family Found., Employer Health Benefits: 2022 Annual Survey, 2022
/3/
/4/Kaiser Family Found., supra note 2, Summary of Findings, 12.
/5/Id.
/6/Id.
/7/Id.
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Employer-provided health benefits are regulated by a number of laws, including ERISA as amended by the ACA.
Self-insured health plans
Small and large employers offer health care coverage to employees in self-funded arrangements (self-insurance) or purchase fully insured plans. ERISA regulates both fully insured and self-insured plans, but only self-insured plans are exempt from a patchwork of benefit mandates and regulations imposed under state insurance law. Employers sponsoring self-insured plans are not subject to the same requirements under ACA as those with fully-insured plans. Therefore, employer-provided plans have different requirements and costs depending on funding arrangements. Last year, approximately 65 percent of workers with employer-sponsored health coverage were enrolled in a self-funded plan, up from 44 percent in 1999 and 55 percent in 2007./8/
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/8/Id. Fig. 10.2, at 157.
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An employer can provide health insurance to employees either by fully insuring or self- insuring. An employer who is fully insured enters into a contractual agreement with a health insurer to purchase a product for the employer's employees. The employer and employees pay a fixed, monthly premium to the insurance company. This arrangement is what many consider "traditional" insurance. An employer that self-funds provides for employees' medical costs by paying providers directly or reimbursing employees as claims arise, instead of paying a fixed premium to an insurance company. Although self-insured employers are responsible for employees' health care expenses, they may customize the design of their health plans to meet the specific needs of their workforce and can retain savings in years with low claims.
A self-insured employer may administer health claims in-house or subcontract the administrative services to a third party administrator (TPA)./9/ The employer or TPA coordinates provider network contracts/10/ and stop-loss insurance for unexpected high claims./11/ By making a conscious choice to bear the financial risk of an employee's health care expenses, employers can experience cost savings that are not available from a coverage purchased in the fully insured market. In 2017, Mr.
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/9/Self-Insurance Inst. of
/10/ Id.
/11/Self-Insurance Inst. of
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If you're a health insurer, you're going to take the increasing cost of medical insurance and, due to our new medical loss ratio law, get a profit percentage on the rising increase of that cost. So, you take it into a self-insured model, and you're not paying the health insurer's profits on top of your rising costs. That's the value of self-insurance. You're taking it and controlling your own destination, and keeping it at a true costs basis./12/
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/12/Legislative Proposals to Improve Health Care Coverage and Provide Lower Costs for Families: Hearing Before the H. Comm. on Educ. & the Workforce, 115th Cong. 83 (2017) (testimony of
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According to
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/13/ Kaiser Family Found., supra note 2, at 156.
/14/ Id.
/15/ Id. ("Self-funding is common among larger firms because they can spread risk of costly claims over a larger number of workers and dependents.") /16/ Id.
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Many employers choose to self-insure because they can customize their plans to their workforce. For example, self-insured plans are not required to cover all categories of essential health benefits mandated by the ACA, so employers can structure their plans to meet the specific needs of their employees.
2. The employer maintains control over the health plan reserves, enabling maximization of interest income--income that would be otherwise generated by an insurance carrier through the investment of premium dollars.
3. The employer does not have to pre-pay for coverage, thereby improving case flow.
4. The employer is not subject to conflicting state health insurance regulations/benefit mandates, [because] self-insured health plans are regulated under federal law (ERISA).
5. The employer is not subject to state health insurance premium taxes which are generally 2-3 percent of the premium's dollar value.
6. The employer is free to contract with the providers or provider network best suited to meet the health care needs of its employees./17/
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/17/Self-Insurance Inst. of
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Self-insurance is also attractive to employers due to the long-term financial savings it may provide. Mr.
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/18/Reducing Health Care Costs for Working Americans and Their Families: Hearing Before the H. Subcomm. on Health, Emp., Lab., & Pensions of the H. Comm. on Educ. & the Workforce, 118th Cong. (2023) (statement of
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[O]ver a three-to five-year period, we see that self-insurance is generally cheaper than health insurance. Now, on a year-to-year basis, that may be very different because the health insurance is prospectively priced where the self-insurance is actually priced. Whatever you actually spend that year is your cost, where for health insurance, they're predicting that."/19/
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/19/Legislative Proposals to Improve Health Care Coverage and Provide Lower Costs for Families: Hearing Before the H. Comm on Educ. & the Workforce, 115th Cong. 110 (2017) (testimony of
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Many self-insured employers also purchase stop-loss insurance, a financial risk- management tool designed to protect against catastrophic claims expenses. Stop-loss insurance reimburses a self-insured plan sponsor for medical claims that exceed a certain pre-established level of liability; it does not insure employees, nor does it reimburse medical providers for care. As
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/20/Id. at 41 (statement of
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The point at which the stop-loss carrier begins to pay its obligations for stop-loss insurance is called the "attachment point."/21/ There are two types of stop-loss insurance: "specific" and "aggregate." Specific stop-loss insurance protects against a high claim of a single employee (or dependent)./22/ Aggregate stop-loss insurance limits the total amount a self-insured employer must pay for all claims during a certain period./23/ Stop-loss insurance may also be purchased for certain types of claims./24/ An employer could purchase more than one type of stop-loss coverage./25/ Kaiser reports that over the last few years, the percentage of employees in self-insured plans that have stop-loss insurance in 2022 is about the same for small firms (73 percent) and large firms (72 percent)./26/
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/21/Kaiser Family Found., supra note 2, at 163.
/22/Id. at 161.
/23/Id.
/24/Id.
/25/Id.
/26/Id. at 162. For these purposes, a small firm is 50 to 199 employees, and a large firm is 200 or more employees.
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A combination arrangement of self-funded insurance combined with significant stop loss coverage (called "level-funded arrangements") has evolved in recent years to mitigate a small business' risk for self-insuring./27/ According to
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/27/Id. at 156.
/28/White statement, supra note 20.
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Stop-loss insurance is sometimes regulated at the state level but not at the federal level. However, the Obama administration repeatedly signaled interest in regulating stop-loss insurance as health insurance. In 2014, DOL posted guidance on state regulation of stop-loss insurance/29/ stating its position that a state law would not be preempted by ERISA. In response to DOL's guidance, then-Chairman of the HELP Subcommittee
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/29/DOL, Technical Release No. 2014-01: Guidance on State Regulation of
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/30/White statement, supra note 20.
/31/Id.
/32/Id.
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Stop-loss coverage is not and should not be defined as health insurance coverage under ERISA, the PHSA, or the Code. Stop-loss insurance differs from health insurance in that it does not insure employees or reimburse medical providers for care.
Support for creating options and flexibility for small businesses
H.R. 2813, THE SELF INSURANCE PROTECTION ACT
H.R. 2813, the Self-Insurance Protection Act, amends ERISA to clarify that federal regulators cannot redefine stop-loss insurance as traditional health insurance in order to preserve the option of self-funding. The bill also prohibits states from regulating stop-loss insurance if state laws or regulations would make stop-loss insurance inaccessible to employers. By providing legal certainty, the bill will help ensure workers and families continue to have access to affordable, flexible self-insured health plans.
CONCLUSION
H.R. 2813, the Self-Insurance Protection Act, makes it easier for small businesses to promote a healthy workforce and offer more affordable health care coverage. By allowing small businesses to sponsor self-insured health coverage for their employees while mitigating financial risk for the employer through stop-loss insurance, the bill puts smaller businesses on a more level playing field with larger companies and unions. More importantly, it provides smaller employers--many of whom have limited resources--with a greater opportunity to offer their workers quality and affordable health care coverage. If enacted, H.R. 2813 will empower small businesses to provide quality health care for their employees.
Summary
H.R. 2813 SECTION BY SECTION
Section 1. Short title
Section 1 provides that the short title is "Self-Insurance Protection Act."
Section 2. Findings
Section provides the following findings by
(1) Small and large employers offer health benefits plan coverage to employees in self-funded arrangements using company assets or a fund, or by paying premiums to purchase fully insured coverage from a health insurance company.
(2) Employers that self-fund health benefit plans will often purchase stop-loss insurance as a financial risk-management tool to protect against excess or unexpected catastrophic health plan claims losses that arise above projected costs paid out of company assets.
(3) Stop-loss coverage insures the employer sponsoring the health benefit plan against unforseen health plan claims, does not insure the employee health benefit plan itself, and does not pay health care providers for medical services provided to the employees.
(4) Employer-sponsored health benefit plans are regulated under the Employee Retirement Income Security Act of 1974; however, States regulate the availability and the coverage terms of stop-loss insurance coverage that employers purchase to protect company assets and to protect a fund against excess or unexpected claims losses.
(5) Both large and small employers that choose to self-fund must also be able to protect company assets or a fund against excess or unexpected claims losses and States must reasonably regulate stop-loss insurance to assure its availability to both large and small employers.
Section 3. Certain medical stop-loss insurance obtained by certain plan sponsors of group health plans not included in the definition of health insurance coverage
Section 3(a) amends Subpart C, Part 7, Subtitle B, of Title I of ERISA by adding a new sentence at the end of Section 733(b)(1): "Such term shall not include a stop-loss policy obtained by a self-funded health plan or a plan sponsor of a group health plan that self-funds the health risks of its plan participants to reimburse the plan or sponsor for losses that the plan or sponsor incurs in providing health or medical benefits to such plan participants in excess of a predetermined level set forth in the stop-loss policy obtained by such plan or sponsor." This provision is to clarify that federal regulators cannot re-define stop loss insurance as traditional health insurance, thereby ensuring that employers can continue to use stop-loss insurance as an important financial tool to help provide health care coverage.
Section 4. Effect on other laws
Section 4 amends Part 5, Subtitle B of Title I of ERISA by adding a subsection (10) at the end of Section 514(b)) providing that Title I of ERISA (including part 7 relating to group health plans) preempts state laws that may prevent a group health plan from insuring against the risk of excess or unexpected health plan claims or losses. This provision renders ineffective any state law that may make stop-loss insurance inaccessible to employers.
Explanation of Amendments
The amendments, including the amendment in the nature of a substitute, are explained in the body of this report.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a description of the application of this bill to the legislative branch. H.R. 2813 takes important steps to preserve and expand access to affordable, high-quality health care coverage for small employers by ensuring that employers may continue to use stop-loss insurance as an important tool in providing employees with self-insured health coverage.
Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment Control Act (as amended by Section 101(a)(2) of the Unfunded Mandates Reform Act, P.L. 104-4) requires a statement of whether the provisions of the reported bill include unfunded mandates. This issue is addressed in the CBO letter.
Earmark Statement
H.R. 2813 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of House rule XXI.
Roll Call Votes
Clause 3(b) of rule XIII of the Rules of the
Statement of General Performance Goals and Objectives
In accordance with clause (3)(c) of House rule XIII, the goal of H.R. 2813 is to preserve and expand access to affordable, high-quality health care coverage for small employers by ensuring that employers may continue to use stop- loss insurance as an important tool in providing employees with self-insured health coverage.
Duplication of Federal Programs
No provision of H.R. 2813 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the Government Accountability Office to
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause 2(b)(1) of rule X of the Rules of the
Required Committee Hearing and Related Hearings
In compliance with clause 3(c)(6) of rule XIII, the following hearing held during the 118th
With respect to the requirements of clause 3(c)(2) of rule XIII of the Rules of the
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of the
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
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MINORITY VIEWS
Introduction
Congressional
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/1/
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Committee
Regulatory Framework of
In general, a group health plan can be funded through two different mechanisms. The plan can either be: (1) self-insured, where the plan sponsor is responsible for the costs of health care claims incurred by plan participants and beneficiaries; or (2) fully insured, where the plan sponsor shifts the financial risk by purchasing coverage from an insurance company who is responsible for costs incurred under the plan./2/
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/2/Gary Claxon et. al., 2022
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Many self-insured plans purchase additional insurance coverage known as "stop loss,"/3/ in which an insurance carrier bears the financial responsibility for claims that are incurred above a certain threshold (known as the "attachment point")./4/ Although states generally have authority to regulate insurers offering coverage in the group market (as well as the individual market), self-insured group health plans are generally exempt from state regulation due to the broad preemption provision of the Employee Retirement Income Security Act (ERISA)./5/
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/3/Both "stop loss" and "stop-loss" are used interchangeably.
/4/Claxon at al., supra note 2 at 160.
/5/29 U.S.C. Sec. 1144(a).
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Federal law does not generally apply any substantive standards to stop loss insurance, as this market is traditionally within the purview of state insurance regulators. However, stop loss issuers may be subject to certain ERISA requirements as group health plan service providers./6/ In addition, ERISA, the Public Health Service Act (PHSA) and the Internal Revenue Code (IRC) provide authority to the Departments of Labor,
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/6/29 U.S.C. Sec. Sec. 1106, 1108(b)(2).
/7/Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-91 Sec. 104.
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Stop Loss as a Potential Workaround From ACA Consumer Protections
While stop loss insurance, when used for its intended purpose, can provide appropriate financial protection for self-funded employers against large losses, experts have increasingly observed that it is often used as a tool to evade regulatory and statutory requirements. Specifically, there has been a marked growth in the number of so-called "level-funded" group health plans, in which plan sponsors--generally small employers--purchase stop loss coverage with extremely low attachment points that essentially insulate the sponsor from meaningful financial responsibility for claims./8/ This allows the plan to operate as a de facto fully insured plan, in which the plan sponsor is only responsible for making fixed payments to the insurer. However, because the plan is legally considered self-insured, ERISA preempts state laws that seek to regulate the plan, and certain requirements of the Affordable Care Act (ACA)/9/ do not apply./10/ As a result, the plan is effectively exempt from key consumer protections, most notably the requirement to provide all ten Essential Health Benefits under the ACA./11/
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/8/
/9/Pub. L. No. 111-148 (2010).
/10/Young, supra note 8 at 16, https://www.brookings.edu/wp-content/uploads/2020/07/Broader-View_July_2020.pdf.
/11/Id.
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H.R. 2813 Obstructs Federal Oversight of Health Insurance Coverage
In recognition that the federal government has authority to clarify that health insurance that masquerades as stop-loss is subject to relevant consumer protections,/12/
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/12/See Departments of Labor,
/13/H.R. 1304, Self-Insurance Protection Act (115th
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It is well established that traditional stop loss insurance policies that insulate employers from catastrophic risk are not health insurance coverage, and there is no indication that the federal government plans to regulate stop loss. Therefore, H.R. 2813 would have little immediate impact on federal oversight of this sector. However, as noted above, the proliferation of level-funded plans using stop loss as a workaround from consumer protections may necessitate future action. Indeed, experts have expressed concern about the inadequacy of the current federal regulatory framework and argue that it would be appropriate to clarify that stop loss functioning as de facto health insurance is subject to rules that apply to other forms of health insurance coverage./14/ However, by redefining health insurance coverage to explicitly exclude stop loss, H.R. 2813 seeks to prevent such action in the future.
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/14/Young, supra note 8 at 33-4. See also,
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H.R. 2813 Undermines Well-Established State Authority Over Stop Loss
In addition, H.R. 2813 takes the extraordinary step of amending ERISA's preemption provision to specifically restrict states that wish to regulate stop loss insurance to protect consumers and small businesses. The bill provides that all requirements of title I of ERISA "shall preempt State laws insofar as they may now or hereafter prevent an employee benefit plan that is a group health plan from insuring against the risk of excess or unexpected health plan claims losses."/15/ This undoes decades of jurisprudence that has long recognized the states' role in regulating the sale of insurance/16/ and goes beyond previous legislative efforts by Committee Republicans to prevent regulation of stop loss.
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/15/H.R. 2813, Self-Insurance Protection Act (118th
/16/See Metropolitan Life Ins. Co. v.
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H.R. 2813 would call into question numerous existing state laws and would impede other states from taking future actions to protect consumers and businesses. For example,
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/17/C.G.S. Sec. 38a-8b.
/18/
/19/
/20/Id.
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H.R. 2813's Preemption Provision Could Further Hinder State Solvency and Consumer Protection Standards
In addition to preempting states' authority to enact specific restrictions on the content of stop loss policies, H.R. 2813 may even restrict states from applying other protections that govern insurance carriers generally--including solvency requirements that prevent underfunding, mismanagement, and fraud. Under current law, ERISA already broadly exempts self-insured plans from state law and H.R. 2813's preemption provision could further hinder states that wish to apply solvency standards on stop loss sold in connection with the plan. This could leave states with no clear authority to regulate the solvency of either the underlying group health plan or the stop loss policy, placing both workers and employers at risk of financial harm. It could also leave individuals harmed by insolvencies with little recourse for unpaid medical claims.
History has shown the very real risks this presents for consumers. The historically lax regulation of multiple employer welfare arrangements (MEWAs) under state solvency and consumer protection standards has led to numerous high-profile insolvencies, including numerous instances in which MEWAs left individuals, employers, and health care providers with tens of millions in unpaid medical claims./21/ As the
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/21/
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There is one common theme, however, and that is the inability of the State regulators to adequately monitor and regulate the activities of [self-funded MEWAs] that purport to be welfare benefit programs in order to insure solvency and proper claims practices. . . . Simply put, we feel that with respect to the solvency of these employee welfare benefit plans, no one is in charge: Not the
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/22/Oversight Investigation of Certain Multiple Employer Health Insurance Trusts (METs), Evading State and Federal Regulation: Hearing Before the Subcomm. on Lab.-Mgmt. Rel. of the H. Comm. on Educ. & Lab., 97th Cong. 51 (1982) (Testimony of
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H.R. 2813's erosion of state authority--when paired with the bill's similar restriction on federal authority--is particularly alarming to consumer and patient advocates. A group of over two dozen consumer and patient advocacy organizations, including the
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/23/Patient community concerns about the detrimental impact of policies included in HR 2868, the Association Health Plans Act; HR 824, the Telehealth Benefit Expansion for Workers Act; and HR 2813, the Self-Insurance Protection Act, Letter to Chair
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H.R 2813 Poses Additional Risks to Consumers and Small Businesses
While employers might view level-funding as a way to avoid the financial risk of self-insuring while achieving potential savings, these arrangements nonetheless pose serious risks to employers and to workers.
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/25/
/26/42 U.S.C. Sec. 300gg-94.
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Finally, as with proposals to expand association health plans, H.R. 2813 threatens the broader insurance market. The ACA ensured a level playing field in the small group market by requiring insurers to use a single risk pool and comply with consumer protections such as coverage of Essential Health Benefits. However, because self-insured plans are not subject to these requirements, increasing incentives for sponsors to level-fund their plans risks segmenting the insurance market and--when healthier groups leave the single risk pool--disadvantages those left behind. As
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/27/Id.
/28/
/29/See, e.g.,
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Democratic Amendment Offered During Markup of H.R. 2813
Committee
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Amendment...Offered By...Description...Action Taken
#2...
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Conclusion
Committee
Gregorio Kilili
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The report is posted at: https://www.congress.gov/congressional-report/118th-congress/house-report/114/1?s=4&r=10
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