Unwanted Scrutiny: Feds Investigate Self-funded Health Plans and Stop-loss

The federal government seems to be fishing around for evidence showing that self-insured health health plans will siphon off healthy lives from state-run insurance exchanges (a cornerstone of reform).

On April 26, the U.S. Departments of Labor (DOL), Health and Human Services (HHS) and IRS/Treasury issued a set of questions about the use of stop-loss insurance in self-funding arrangements. Comments must be submitted on or before July 3, 2012.

Helping to push this inquiry have been the states, working through the National Association of Insurance Commissioners (NAIC). They’ve been looking for a way to regulate self-insured ERISA plans (which do not have to abide by state insurance laws), in a potential bid to strengthen regulatory power over employer plans, self-funding proponents say.

Self-insured health plans use stop-loss insurance — typically not considered health insurance — to fund expensive claims by individual participants (with “specific attachment points” determining when funding starts), and accumulated charges (with funding triggered when “aggregate attachment points” are reached). Attachment points are determined in the contract between the stop-loss insurer and the self-insured plan.

Since the mid-1990s, the NAIC has expressed suspicion that using stop-loss insurance with very low attachment points is an improper use of self-funded status to circumvent state health insurance laws, rating policies and consumer protections. An example of very low attachment points would $5,000 per employee, or $100,000 for a small group.

The Suspicion

Because of these pressures, federal government issued an extensive set of questions to see whether self-insured health plans will siphon young healthy lives away from the exchanges, thereby harming the risk pool that health reform depends on for its coverage mandates.

Among the questions in the document are:

• How common is the use of stop-loss insurance?
• How is that affected by company size, health reform and other factors?
• What are common attachment points for stop-loss insurance policies? How are they determined?
• How do insurers work with small employers to integrate stop-loss insurance protection with self-insured group health plans?
• What percentage of total medical costs are typically paid by the employer and what percentage is paid for by the stop-loss policy?
• What are the administrative costs to employers for stop-loss insurance purchased? How are these different from plain health insurance?
• How do stop-loss insurers evaluate plans seeking coverage? How is this evaluation reflected in the coverage or premiums offered?
• How do states regulate stop-loss insurance? What issues do states face in regulating stop-loss insurance?
• What impact does the use of stop-loss insurance by self-insured small employers have on the small group fully insured market?

Forms 5500 do not include information on attachment points associated with stop-loss policies or any information on stop-loss insurance policies held by plan sponsors rather than by plans. Because of that, the agencies said, the government was not getting the data it needed to answer whether self-funding is a threat to reform and state regulation. Hence the need for the present survey.

For more information on self-insuring health benefits, see the Employer’s Guide to Self-Insuring Health Benefits, from Thompson Publishing Group.