Small Employer Self-funding Must ‘Stop’: NAIC Adviser Touts Stop-loss Limits

Employers that want to self-fund their health benefits (and the vendors and attorneys who want to serve them) have yet another (as they see it) unreasonable opponent to self-insuring health benefits.

An adviser to the National Association of Insurance Commissioners has told NAIC that it should amend its model stop-loss coverage law to prohibit the sale of stop-loss insurance to small groups. (NAIC model legislation is not binding, but it can be — and is — used to amend state statutes and codes.) (Note: The PPACA defines “small employer” as one that employs an average of not more than 100 workers in a calendar year).

In a new position paper, NAIC consumer representative Timothy Jost (a law professor at Washington and Lee University School of Law) links self-insurance with less reliable and inferior benefits, and asserts that if more small companies do self-insure, there will be more unreliable plans that avoid important insurance mandates promulgated by states and under the federal health reform law. Here is the paper.

Self-insured plans are exempt from certain health reform requirements, and Jost argues that they will they will use that opportunity to shortchange plan participants. He targets two growing trends:

• stop-loss with low attachment points; and
• turn-key self-insured plans designed by big insurers.

Jost recommends barring the sale of stop-loss to small firms because they should be discouraged from self-insuring. Failing that, he advocates raising the minimum acceptable attachment points to $40,000 for individual claims, and to $4,000 times the number of group members for aggregate claims.

“If employers had to actually bear significant risk in becoming self-insured, small employers would be less likely to pursue it. But stop-loss coverage with low “attachment points,” i.e., amounts beyond which the employer is not at risk for the costs of any employee, can dramatically lower the risk of “self-insurance” for employers,” Jost writes.

After searching the web and reading quotes attributed to him, it’s clear that Jost wants more compliance with health reform mandates and believes that businesses and insurers are affected by conflicts of interest and so need regulators to prevent them from treating consumers unfairly. Check this.

Here, Jost is saying he supports minimum medical cost ratios, even if it means fewer health plans and insurance choices.

Obviously, the self-insurance community is not happy with this, and has prepared a draft paper refuting Jost’s arguments. See next blog post.