California limits stop loss coverage for self-insuring small employers

After legislation in the previous legislative session limiting the use of medical stop loss insurance by self-insured small employers failed to advance to the governor’s desk, a measure that would do so was signed into law this week by California Gov. Jerry Brown.

SB 161 bars stop loss policies issued or renewed on or after January 1, 2014, and prior to January 1, 2016 that cover losses with attachment points of $35,000 or less for any individual employee or losses for all employees exceeding $5,000 times the number of employees, 120 percent of expected claims or which provide direct rather than excess of loss coverage.  After January 1, 2016, the measure outlaws stop loss policies having aggregate or total limits of less than $40,000. The bill grandfathers policies in effect as of September 1, 2013 provided the stop loss limits of those in-force policies remain unchanged.

SB 161 sparked division within the insurance industry and business groups. Supporters including Blue Shield of California, Kaiser Permanente and Health Access California see the measure as necessary in order to give the Patient Protection and Affordable Care Act’s and state small group rules including a single statewide small group risk pool and exchange marketplace, the Small Business Health Options Program (SHOP), a chance to work. Otherwise, they argue, it would be too easy for small employers with relatively younger and healthier workforces to retain their own risk for employee health coverage with the safety of relatively accessible stop loss coverage with low attachment points. Also of concern is by making self-insurance a more viable option, small employers could more easily move between self-insurance and the insured market based on their claims experience, potentially producing adverse selection against the small group insurance market and the SHOP exchange marketplace.

Opponents of the bill including CIGNA Life and Health Insurance Company, the National Federation of Independent Business and brokers view self-insurance as a useful market option for small employers struggling with high insurance premiums. However one opponent, the American Association of Preferred Provider Organizations, contends SB 161’s attachment points (which were about three times higher in the original version of the bill) are “unaffordable for small businesses who already take on the calculated risk in administering a complex stop-loss self-insurance program,” according to a Senate analysis of the bill.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

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Frederick Pilot

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