Access to Stop-Loss and What It Means for Small Employers
Self-funding health benefits is an appealing approach for many employers due to its flexibility. Employers can customize and tailor benefits to meet their employees’ needs, exercise control over healthcare spending, and implement measures to minimize exorbitant costs. Unfortunately, not every employer has the same opportunities available to them in the self-funded space, particularly concerning the availability of stop-loss coverage for small employers. Self-funding is often not a viable option if stop-loss is unavailable since the health plan would be assuming all financial risks. Interestingly, recent legislation suggests there may be a shift in this area.
The House introduced H.R.2571, the “Self-Insurance Protection Act,” back in early April. This Act proposes to amend the definition of “health insurance coverage” within the Employee Retirement Income Security Act (ERISA). The modified definition would stipulate that a stop-loss policy obtained by a self-insured group health plan for the reimbursement of payments for health benefits is not considered “health insurance coverage.” This change would preempt some state stop-loss laws since self-funded plans with stop-loss coverage would not be seen as carrying insurance. Should this bill pass, small employers that were formerly limited by state insurance laws that mandate a minimum number of lives would no longer face the same restrictions. This would open the door for more small employers to explore self-funding with the protection of stop-loss.
A bill in North Carolina, S.B. 218, was introduced with a similar goal to the bill in Congress. The North Carolina bill would revise state insurance laws to increase stop-loss access for small employers. Currently, North Carolina law prohibits stop-loss carriers from offering coverage to employers with fewer than twelve employees. The bill proposes to lower that number to employers with fewer than five employees. This would provide certain small employers with access to stop-loss coverage, which would likely expand the self-funded space in the state. The bill does, however, institute requirements related to minimum specific and aggregate deductibles, which may pose difficulties for employers with very few employees should they incur high-dollar claims.
There are, however, some states whose intentions directly conflict with the goals of the House and North Carolina bills. For example, Louisiana introduced a bill, S.B. 16, that would further limit the availability of stop-loss by requiring that it may only be issued to employers with over 50 employees. This would further hinder small employers in the state from self-funding.
The House and North Carolina bills suggest potentially greater availability of stop-loss coverage and, by extension, self-funding for small employers. Regardless of restrictions, becoming familiar with relevant state laws and assessing the feasibility of self-funding is paramount for some employers.