State Senate To Conduct Hearing on Bill Limiting Stop-Loss Insurance

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On Wednesday, the California Senate is scheduled to hold a hearing on legislation (SB 1431) that would impose new limits on a type of self-insurance being sold to small businesses, the Los Angeles Times reports (Terhune, Los Angeles Times, 4/21).

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.

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 (California Healthline, 3/23).

SB 1431 would ban stop-loss coverage below $95,000 per worker.

Support for Legislation

Janice Rocco -- California's deputy insurance commissioner for health policy -- said, "Unlike other states that prohibit the sale of stop-loss to small employers, this legislation sets an attachment point so the product is still available to small employers in a way that creates a level playing field so the employer is actually self-insuring."

Last week, not-for-profit insurer Blue Shield of California expressed support for the measure in a letter to lawmakers, saying, "Stop-loss insurers are using this product line to cherry-pick young and healthy small employers for coverage while leaving less healthy populations to the fully insured market."

Criticism of Legislation

The California Chamber of Commerce and the National Federation of Independent Business oppose the bill, saying the dollar amount for small businesses would be unreasonably high.

Insurer Cigna -- the top seller of stop-loss plans -- said the proposal could penalize small employers by putting the plans "out of reach financially."

Meanwhile, Mike Ferguson -- COO of the trade group Self-Insurance Institute of America – said that the proposal "is not legal" and that his group will try to block it or "pursue the matter in federal court."

Other Views

Timothy Jost -- a law professor at Washington and Lee University -- affirmed states' authority to create rules for stop-loss coverage. He noted that other states could follow California's example if the law passes.

Scott Hauge -- president of Small Business California -- said the organization has not yet decided whether it supports or opposes the legislation. He said that small businesses should be able to fund their own health plans, but he noted that he shares insurance regulators' concerns that costs could increase for small business owners who have regular insurance plans if other organizations continue to purchase currently available stop-loss policies (Terhune, Los Angeles Times, 4/21).

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