State laws barring stop-loss policies with low attachment points are not preempted by ERISA, the U.S. Department of Labor said in Technical Release 2014-01. Ten states have passed such laws, many of them since the advent of the Affordable Care Act.
When small groups self-insure, they are subject to proportionately larger impacts from particular expensive claims, have fewer back-up resources to pay unexpected large amounts and as a result are more likely to take out stop-loss insurance with low attachment points, DOL said.
In its guidance DOL gave credence to the view that self-funding by smaller companies poses a threat to health care reform. For example, it said when a stop-loss insurer assumes the employer’s claims risk (via low attachment points), then the self-funded plan may be getting an undeserved free pass on state-insurance and health-care-reform mandates.
DOL said low attachment points also could divert enrollment away from state-based health insurance exchanges, thereby weakening them.
[Policies with low attachment points might] create adverse selection in the risk pool and increase premiums in the fully-insured small group market, including in the Small Business Health Options Exchanges, by encouraging small employers with healthier employees to self-insure and thus increasing the proportion of less healthy enrollees in insured coverage.
DOL remarked that states have set minimum attachment points. Maryland in 2008 barred insurers from selling policies with a specific attachment point of less than $10,000 or an aggregate point of less than 115 percent of expected claims.
The National Association of Insurance Commissioners adopted a model law that prohibits attachment points with specific attachment points below $20,000. States may typically use NAIC models as templates for their own legislation.
It is DOL’s position that such laws should not be invalidated as a result of ERISA preemption.
DOL reasoned that states may regulate insurance used by plans or plan sponsors, including stop-loss, but that is not the same as the state regulating the ERISA plan. If a state law regulates the insurance policies that fully insured group health plans buy to insure their workforces, they are not preempted as long as they regulate companies in, and the business of, insurance. The situation should not be any different for stop-loss for self-insured plans. Therefore, DOL said, it believes state laws setting minimum attachment points for stop-loss are not preempted by ERISA.