Self-Funding Under Attack

“Employers that want to self-fund their health benefits (and the vendors and attorneys who want to serve them) have yet another (as they see it) unreasonable opponent to self-insuring health benefits.”

MyHealthGuide Source: Todd Leeuwenburgh, Thompson Blog on HR and Benefits, 10/3/2011 , 

Employers that want to self-fund their health benefits (and the vendors and attorneys who want to serve them) have yet another (as they see it) unreasonable opponent to self-insuring health benefits.

An adviser to the National Association of Insurance Commissioners has told NAIC that it should amend its model stop-loss coverage law to prohibit the sale of stop-loss insurance to small groups. (NAIC model legislation is not binding, but it can be — and is — used to amend state statutes and codes.) (Note: The PPACA defines “small employer” as one that employs an average of not more than 100 workers in a calendar year).

In a new position paper, NAIC consumer representative Timothy Jost (a law professor at Washington and Lee University School of Law) links self-insurance with less reliable and inferior benefits, and asserts that if more small companies do self-insure, there will be more unreliable plans that avoid important insurance mandates promulgated by states and under the federal health reform law. Here is the paper.

Jost Argues Two Trends

Self-insured plans are exempt from certain health reform requirements, and Jost argues that they will they will use that opportunity to shortchange plan participants. He targets two growing trends:

  • stop-loss with low attachment points; and
  • turn-key self-insured plans designed by big insurers.

Jost recommends barring the sale of stop-loss to small firms because they should be discouraged from self-insuring. Failing that, he advocates raising the minimum acceptable attachment points to $40,000 for individual claims, and to $4,000 times the number of group members for aggregate claims.

“If employers had to actually bear significant risk in becoming self-insured, small employers would be less likely to pursue it. But stop-loss coverage with low “attachment points,” i.e., amounts beyond which the employer is not at risk for the costs of any employee, can dramatically lower the risk of “self-insurance” for employers,” Jost writes.

After searching the web and reading quotes attributed to him, it’s clear that Jost wants more compliance with health reform mandates and believes that businesses and insurers are affected by conflicts of interest and so need regulators to prevent them from treating consumers unfairly. Click here for Jost position.

Jost is saying he supports minimum medical cost ratios, even if it means fewer health plans and insurance choices.

Obviously, the self-insurance community is not happy with this, and has prepared a draft paper refuting Jost’s arguments.

Not Again: SIIA Refutes ‘Misinformation’ About Self-funding

It’s like the Hollywood movie Groundhog Day all over again. The Self Insurance Institute of America (SIIA) wakes up and has to face the same “anti-self-funding” arguments about adverse selection, insolvency and inferior benefits that it refuted last year the year before and the year before that.

Again in damage-control mode, this time the group is rebutting testimony by an NAIC (National Association of Insurance Commissioners) adviser aiming to restrict self-insuring health benefits by small employers, and eliminating stop-loss (S-L) insurance with attachment points below $40,000 for individual claims.

Timothy Jost, a law professor at Washington and Lee University, argued that self-insured employers are a problem for federal and state regulators and that stop-loss with low attachment points results in unreliable health plans, and will counteract pro-consumer health reform mandates.

A panel of experts affiliated with SIIA is responding to Jost, making these points:

Low attachment points do not mean the stop-loss carrier is insuring the self-funded plan. S-L insurers are not health insurance, SIIA says. They handle a low frequency of catastrophic claims and are not equipped to deal with a high volume of low dollar claims. They do not change the fact that self-funded plans must pay every claim before seeking S-L reimbursement. Also, “existing legal precedent is clear that stop-loss attachment point levels cannot be used as a factor to conclude that a self-insured employer is actually fully-insured.”

Employers that self-insure are in fact sufficiently regulated. While self-insured plans are exempt from state regulatory requirements, they are regulated under ERISA, HIPAA and COBRA, SIIA says. Further, they are subject to the vast majority of the new mandates under the health reform law (PPACA) — including dependent coverage until age 26, elimination of lifetime and annual caps and preventive services with no cost sharing.

SIIA also the rejected the professor’s statements that:

  • employers purchase “self-insured packages” from insurers;
  • self-insured plans cover primarily healthy groups; and
  • self-insuring results in adverse selection in connection with the proposed state-operated health insurance exchanges.

“On behalf of the thousands of self-insured employers throughout the country who rely on the ability to access stop-loss insurance appropriate for the level of their risk tolerance to provide affordable health benefits for their employees, SIIA requests that the NAIC rejects any proposal that would further regulate stop-loss insurance. Such action is unnecessary, bad public policy and conflicts with existing legal precedent,” SIIA concluded.