Stop-loss health insurance is a way for small-business employers to offer a form of health care insurance to employees while limiting risk. The trouble with that, according to Senate member Kevin De León (D-Los Angeles), is that the low risk incurred by stop-loss insurers could mean higher rates for the rest of California.
"Here's the problem," De León said this week before the Assembly Committee on Health. "Any increase in stop-loss coverage insurance … could lead to a significant exodus of small employers … especially employers with young employees, leaving behind a smaller-group insurance pool subject to skyrocketing premiums."
Basically, stop-loss coverage allows insurers to cherry-pick or adversely select the youngest and healthiest consumers with low rates, which makes rates rise for everyone else, De León said.
De León has introduced SB 1431, which would place some limits on stop-loss insurance.
California Insurance Commissioner Dave Jones, speaking at the committee hearing, said stop-loss insurance threatens the success of the state's benefit exchange.
"One of the major underlying premises of the Affordable Care Act is getting everyone into the risk pool -- individuals and small businesses, both inside and outside the exchange," Jones said. "Unfortunately, right now, there's a loophole. And that loophole is the ability of small employers to self-insure and to purchase … stop-loss insurance, which is unregulated, virtually, by state or federal insurance law."
The tricky part of regulating stop-loss, Jones said, is that many small businesses in California already own it.
"There are 19 states that have passed laws regarding self-insurance and stop-loss insurance," Jones said. "A number of those states have outlawed it outright. This bill simply sets the rules of the road, including an attachment point, the point at which they cannot get stop-loss insurance."
The attachment point is a point of contention. The bill would prohibit any new stop-loss policies from specified attachment points -- that is, the dollar amount above which the stop-loss carrier will reimburse claims.
"It severely limits small businesses' option of self-funding, which is a viable option for a lot of small employers," said Marti Fisher, a policy advocate for the California Chamber of Commerce. "By setting the stop-loss attachment point at an unreasonably high level, it virtually eliminates that opportunity."
De León said that attachment-point number has already come down as a compromise, but added that he would be open to discussing the possibility of lowering it further.
Teresa Stark, legislative advocate for Kaiser Permanente, said the Small Business Health Options Program -- known as the "SHOP'' exchange -- needs robust consumer participation to succeed, and that would be made more difficult by stop-loss plans.
"The bill achieves a delicate balance," Stark said. "We're trying to achieve two goals here, one is to keep the product available in the marketplace, and making sure that the folks left in the insured marketplace can also have access to affordable coverage for their employees."
According to David Chase, legislative advocate for the Small Business Majority, that wide and affordable access to coverage is essential, especially now.
"Small employers in the state are really being hit by health care costs," Chase said. "Dollars that are being spent on health care could be spent on hiring people and growing their business."
But many of those small employers need something a little different than what the SHOP exchange can offer, according to Patrick Burns, a board member of the California Association of Health Underwriters.
"Many businesses in California require the flexibility of self-funding to offer any type of coverage to their employees," Burns said. "For example, some of my clients in Berkeley want to offer more holistic alternatives, like chiropractic care and acupuncture, and that may not be included in these basic plans."
Burns said those services might include mental health care, in vitro fertilization, expanded coverage for dependents, or greater prescription drug coverage. "Self-funded plans can help small employers offer those benefits," he said.
The Assembly Committee on Health approved SB 1431 with 12 aye votes. It now heads to the Assembly floor, when the Legislature returns from recess next month.