New Developments in the Stop-Loss Debate

There is a lot of talk around D.C. these days about whether or not more small employers will self-fund their employees’ health coverage with implementation of the Affordable Care Act – and, if they do, how this could impact the fully-insured small group market (including, but not limited to, the SHOP exchanges).

On Wednesday, the Commonwealth Fund published an issue brief by Matthew Buettgens and Linda Blumberg analyzing the potential impact of the availability of stop-loss insurance with attachment points set across a range of levels on premiums and coverage in the fully insured small group market. Using the Urban Institute’s Health Insurance Policy Simulation Model (HIPSM), Buettgens and Blumberg predict significant adverse selection against the fully-insured small group market if stop-loss coverage is available with $0 attachment points nationally. By comparison, they find that if stop-loss coverage were only available with specific attachment points of $60,000 (and similarly high aggregate attachment points), “the fully insured small group market would be roughly 1.5 times as large and the average fully insured small-group premium would be at least 20 percent lower” than under the $0 attachment point scenario. While the issue brief does not report on the prevalence stop-loss insurance with no or very low attachment points is today, the authors note that nothing would prevent such plans from being sold in the approximately 30 states that do not regulate stop-loss insurance.

Offering another perspective, a paper out yesterday by Paul Fronstin at the Employee Benefit Research Institute (EBRI) finds that we have yet to see an increase in self-funding by small groups despite steady movement in this direction by larger groups. Complicating the picture further, Fronstin reports that Massachusetts, which has already enacted health insurance reforms similar to those in the Affordable Care Act, has the third highest rate of self-insurance in the small group market but this percentage has not increased in over ten years.

The National Association of Insurance Commissioners (NAIC) has also been looking into this issue as commissioners debated whether or not to increase the minimum attachment points in the group’s stop-loss model law. Supporters of the change argue that the current levels are out-of-date and insufficient to curtail the risk of adverse selection. Others counter that NAIC should not limit options for employers looking to provide coverage to their workers and point out that few states have even adopted the model law as it presently stands. Reports from my colleagues at this week’s NAIC meeting in National Harbor, Maryland indicate that the ERISA (B) Working Group ultimately voted against updating the model law yesterday morning. The commissioners did agree to analyze self-insuring by small groups further in the future, however.

With things far from resolved despite these developments, stay tuned to CHIRblog where I and my colleagues will keep you posted as we dig deeper into this issue ourselves.

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