About a year ago, this blog noted concern among policymakers over small employers opting out of small group health insurance by self-insuring and buying stop loss insurance to defray the cost of major claims. The concern is stop loss coverage that kicks in when a claim reaches as little as $10,000 to $20,000 could adversely affect the Small Business Health Options Program (SHOP) of state health benefit exchanges by making self-insurance a more appealing option than usual for small employers who typically don’t self-insure.
SHOPs function as marketplaces for small employers to purchase health insurance, aggregating their purchasing power into a single risk pool to enable them to get better premium rates than they could otherwise obtain on their own. The issue was covered this week by Kaiser Health News (KHN). The KHN story quoted a stop loss consultant describing the bulk of small employers interested in self-insurance paired with stop loss coverage as having 25 to 30 workers – right in the sweet spot for SHOPs that like California’s that will serve employers with up to 50 employees.
In California, legislation that would have increased the minimum attachment point of stop loss coverage to make it less palatable for most small employers died in committee last year. The legislation has been recycled in the current session as Senate Bill 161, which would outlaw stop loss coverage with an attachment point of $95,000 per employee, $19,000 times the total number of covered employees and dependents, or 120 percent of expected claims – whichever is greater.
Undermining demand in the SHOP market isn’t the only concern. Some fear adverse selection in the small group insured market as a whole if small employers with mostly younger workers self-insure their workforces for medical risk, leaving insurers to cover older, higher cost workers. Michael Ferguson, chief operating officer at the Self-Insurance Institute of America, downplays the prospect, telling KHN small employers can also face large claims from younger employees.
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