Calif., Other States Mull Limiting Businesses’ Self-Coverage Plans

California and several other states are considering ways to raise the level at which stop-loss health coverage starts, in an effort to reduce or eliminate small businesses' ability to self-insure, Kaiser Health News/USA Today reports (Hancock, Kaiser Health News/USA Today, 3/15).

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 (California Healthline, 9/4/12).

Brokers of the self-insurance plans have said that a growing number of small businesses see the plans as low-cost alternatives to more traditional coverage. The self-insurance plans are exempt from certain Affordable Care Act requirements, such as insurance taxes and providing specified benefits.

Concerns About Self-Insurance Plans

Some policy experts see self-insurance plans as a threat to the ACA, saying that if too many small businesses decide to self-insure, health plans for small businesses could get stuck with a pool of policyholders who are older and have more health conditions.

Matthew Buettgens -- a researcher at the Urban Institute -- said that such a dynamic could increase the cost of traditional insurance by as much as 25%.

Mark Hall -- a law professor at Wake Forest University -- said, "If it becomes too easy to self-insure, you're inviting employers to choose one kind of coverage if their workers are healthy and a different kind of coverage if they're sick."

Response to Concerns

Michael Ferguson -- COO at the Self-Insurance Institute of America -- said that self-insurance might be the only way that some employers can afford to provide health insurance.

He also disputed the idea that small businesses and stop-loss companies could "cherry pick" the system by self-insuring only when employees appear healthy.

Ferguson said that businesses often know less about employees' health than they think and that even young employees can incur high health costs when they get sick or have an accident (Kaiser Health News/USA Today, 3/15).