Tag Archive: self insurance

Small group most voluntary market segment under ACA – and faces unique viability risks

Of the three major health insurance market segments – large group, small group and individual – small group is the most voluntary market under Patient Protection and Affordable Care Act rules that take effect January 1, 2014.

Large employers, defined by the ACA as employing 50 or more full time workers, are subject to the employer shared responsibility requirement to offer coverage to nearly of these employees. All individuals must have some form of health coverage under pain of a tax penalty for going bare. Small employers on the other hand have the greatest degree of freedom of choice as to whether to play in the small group market.

The ACA strengthens the functionality of the small group market with several provisions. It eliminates risk rating of small employers by health plan issuers. The ACA also enhances the risk pooling power of small employers by combining them into single statewide risk pools. Finally, the law affords small employers the purchasing power of large employers through the Small Employer Health Options Program (SHOP) of the state health benefit exchange marketplace. The SHOP also serves as a benefit administrator of sorts for small employers, helping them select plans and billing them for monthly premiums.

The extent to which these reforms work as intended to shore up the small group market will become clearer over the next few years. There are several factors that could result in the leakage of potential covered lives out of the small group market, potentially adversely affecting the viability of the small group pool and the SHOP, particularly if a significant number of small employers now offering health coverage to their employees adopt them. They include:

  • Opting to participate in “private” exchanges set up by health benefit plan administrators and insurance brokerages instead of the SHOP
  • Offering a defined contribution benefit or stipend to help workers buy their own coverage on the state exchange individual marketplace instead of directly offering coverage
  • Self-insuring for employee health care costs.
 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

To pool or not to pool

That is the question some small businesses are confronting, with those with healthy employees considering opting out of the insurance pool and paying workers’ medical costs themselves. Today’s Wall Street Journal has the story. 

As the story notes, self insurance can be a high risk proposition for companies of fewer than 100 workers since they don’t benefit from risk spreading as do larger (and insured) businesses.  That’s why it has traditionally been employed solely by larger businesses.  However, as small employers sought relief from rising insurance premiums over the past decade, some turned to self insurance.

From the perspective of policymakers, the timing of the trend is highly inconvenient given the rollout of Patient Protection and Affordable Care Act reforms in 2014 that require insurers to treat all small employers in a given state as a single risk pool, prohibiting them from risk rating a small enterprise based on the health status of its work force.  Policymakers worry that if too many small employers self insure their medical risk, it will hamstring the Small Business Health Options Program (SHOP), the small employer exchange marketplace, and foster adverse selection against the small group market as a whole if small employers with older, less healthy workers concentrate in it.

California legislation intended to make self-insurance among small employers a less attractive option by limiting their ability to insure medical claims that reach relatively low dollar amounts – known as stop loss coverage – continues to advance this year after a similar measure stalled in 2012.  SB 161 is supported by the Department of Insurance and some large insurers and opposed by business and producer groups.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

California measure that would deter self-insurance of medical risk by small employers advances

To insure or self-insure?  That’s the policy question underlying pending California legislation that passed its first committee test this week.  SB 161 is designed to reduce the incentive for small employers to self-insure their workforces for medical costs by making it less feasible for these employers to limit their losses once they reach a certain point.  Supporters of the bill maintain it’s needed to give the state health benefit exchange’s Small Business Health Options Program (SHOP) the opportunity to bring down insurance rates by aggregating small employers’ purchasing power into a single buying mechanism starting in 2014.  Click here for an analysis of the measure prepared by the Senate Health Committee, which passed out the bill May 2.  A similar bill stalled in 2012.

Self-insurance arose as a solution for small employers beleaguered by rising small group insurance premiums over the past decade.  But self-insuring medical risk is a high risk proposition for small employer since unlike large employers, they are unable to spread the risk of a large claim over a sizable group of employees.  That’s why it’s a no go for small employers without “stop loss” coverage to kick in when an individual employee’s or all employees as a group incur losses in a policy year exceeding a set amount.  SB 161 would bar stop loss coverage from protecting a small employer until an individual employee incurred medical bills of $65,000 or those of the entire workforce reach dollar amounts specified in the bill.

Opponents of the bill argue that the market should determine which approach works best for small employers: self-insurance or insurance.  Other issues cause consternation among supporters of the measure.  Only larger small employers are likely to consider self-insurance given the inherent risk that favors size.  That could leave the SHOP with the low end of the small group segment – employers having less than 20 to 30 employees.  This could reduce the SHOP’s market power with health plan issuers since there would potentially be fewer “covered lives” and larger employers to bring to the bargaining table.  (In California, the small group market is employers with 50 or fewer employees.)

Apparently concerned about stop loss coverage’s potential to undermine the SHOP exchange marketplace, the U.S. Department of Health and Human Services issued a proposed rule April 5, 2013 barring entities with relationships to issuers of stop loss insurance, including those who are compensated directly or indirectly by issuers of stop loss insurance, from serving as exchange navigators.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Stop loss coverage for small self-insured employers getting attention again in 2013

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.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

California legislation limiting self-insured small employer medical stop loss coverage moves forward

California lawmakers are concerned a trend of small employers self insuring their employee health benefits and purchasing stop loss coverage for cases when a given worker incurs high medical bills will play havoc with the state’s small group health insurance market.  The chief concern is the arrangement will further reduce an already shrinking and distressed market segment and foster adverse selection as the state prepares to bolster the market starting in 2014 with a Small Business Health Options Program (SHOP) offered through the California Health Benefit Exchange.

Lawmakers are responding by imposing restrictions on medical stop loss coverage with SB 1431, legislation sponsored by California Insurance Commissioner Dave Jones and approved this week by the Senate Health Committee setting higher attachment points for the insurance.  Stop loss coverage has been reportedly offered with attachment points as low as $10,000 to $20,000.  Combined with a $1,000 to $2,000 deductible, employers would be responsible for an employee’s medical bills in a relatively narrow window above the employee deductible and below the stop loss attachment point.  Stop loss insurance kicks in when an employee’s medical costs exceed the attachment point.

“SB 1431 is necessary to prevent the state’s small group market from falling victim to adverse selection and unsustainable premium levels and protecting California’s small businesses, its employees, and the success of the post-ACA (Affordable Care Act) insurance market,” the committee’s analysis notes.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Self-insurance trend in small group market seen as threat to actuarial integrity of SHOPs

Self-insuring health benefits has traditionally been the province of large employers that could afford to assume the risk of paying much of their employees’ health care costs.  Smaller employers with too few workers to feasibly spread that risk have traditionally relied on insurance as a risk transfer mechanism.

In a sign of how distressed the small group health insurance market has become, that notion is being turned on its head.  Now small employers are shunning insurance and self-insuring their health benefit risk — to a certain point.  After an employee’s medical costs hit a set amount, stop loss insurance kicks in.  That “attachment point” as it’s referred to in insurance terminology can be as low as $10,000 to $20,000, according to this Los Angeles Times article.

As the Times reports, the practice is stoking controversy and raising concern it could steer small employers away from Small Business Health Options Programs (SHOPs) being set up under the state health benefit exchange component of the Patient Protection and Affordable Care Act (PPACA). Beginning in 2014, SHOPs will allow small employers to offer employees a variety health plans like so-called “cafeteria plans” offered by large employers.  The concern is without sufficient participation by employers, the SHOP plans could face increased risk for adverse selection by limiting the size of the SHOP’s risk pool.

While not directly saying so in the Times story, California’s insurance regulator is sufficiently alarmed by the potential threat to the actuarial integrity of that state’s yet to be formed SHOP that he wants legislation that would require higher attachment points for self-insured small employer health stop loss coverage.  That would also make self-insurance a less attractive option for small employers than getting coverage through the Golden State’s SHOP, reducing the SHOP’s spread of risk.  The California Health Benefit Exchange issued a solicitation last month seeking bids to help it design its SHOP.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Growing interest in self insurance among mid-sized California employers

As group health insurance premiums continue to rise, HealthLeaders-InterStudy reports growing interest among mid-sized California employers in directly paying employee medical costs, known as self insurance.

The findings are reported in HealthLeaders-InterStudy’s proprietary California Health Plan Analysis.  The report notes CIGNA HealthCare is seeing “significant sales increase” in a self-funded product tailored to smaller groups, adding that other California group health insurers are expected to respond by developing self-funding products offering financing plans to mitigate the risk associated with paying all of a group’s medical claims.

Most importantly, since employers will be paying for their workers’ health costs out of their own coffers, they will have far greater incentive to promote employee wellness and management of chronic conditions.  So far, workplace wellness efforts have produced a mixed verdict in terms of their effectiveness.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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