Calif. Officials Seek New Limits on Certain Small Business Health Plans

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California insurance officials are trying to limit the sale of a type of self-insurance to small businesses, saying such plans could pose a threat to state and federal health reforms, the Los Angeles Times reports.

Background

Self-insurance plans -- which require employers to pay medical providers for workers' care -- typically are used by large employers with significant financial resources.

Recently, some insurers have begun selling a type of self-insurance plan called a stop-loss policy to smaller businesses with as few as 25 workers. Stop-loss plans limit employer payouts for big claims, guaranteeing that businesses are not responsible for medical expenses over a certain amount for each worker.

Criticism of Stop-Loss Plans

Regulators and health policy experts argue that stop-loss plans undermine the idea of self-insurance because employers do not bear a significant amount of the risk and because they allow companies to avoid certain state insurance regulations.

Critics say that insurers are selling the plans to companies with healthier workers, which could undermine the federal health reform law's goal to group healthy and sick individuals together to lower premiums.

Proposed Legislation

State Insurance Commissioner Dave Jones (D) plans to propose a bill next week that would prohibit insurers from selling stop-loss policies with an employer payout limit that is less than a certain amount. Some experts have recommended a $40,000 minimum limit per worker.

The bill could make stop-loss plans less attractive for small employers, which would need to cover more of their employees' medical bills.

Janice Rocco -- California's deputy insurance commissioner for health policy -- said the bill's goal would be to "help ensure the success of the small group market as significant health care reforms are going into effect."

Insurers' Response

Insurers say that they are selling stop-loss plans in response to demands from employers for more cost-effective health coverage and that state regulators should not interfere.

Mike Ferguson -- COO at the Self-Insurance Industry Institute of America -- said, "We are concerned about regulators' actions because self-insurance is arguably one segment of the health care market that is working well." He added, "These companies are generally able to control costs better and offer more customized benefits."

He also said there is no evidence that insurers are selling the plans primarily to companies with healthier workers (Terhune, Los Angeles Times, 3/23).

Tim Colling
Once again, our state government seems determined to punish employers for being employers. What possible harm is done by these seemingly innovative, helpful insurance programs? Perhaps the real reason is political: if this new type of coverage is a more appropriate, less intrusive, non-governmental solution to health insurance for small businesses, then of course it might pose a threat to Obamacare, since it would be yet another example of how Obamacare is a bad idea for our country.
Edward Callahan
It doesn't make sense to discourage small businesses from providing health insurance. In exchange for the reduced risk created by the stop loss, they pay a higher rate. Insurance companies charge based on age and health of the workers. How can taking on risk that a small business cannot afford create a better system? The state already greatly favors large business over small. Why make it more difficult?

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