Small businesses in California will face self-funding rules in 2014 under a new law regulating an option more and more employers have been embracing.
The law, approved by Governor Jerry Brown earlier this month, sets new attachment points for individual and aggregate claims in stop-loss policies sold to self-funded employers with less than 50 employees -- and those with up to 100 employees come 2016.
Starting in January, stop-loss policies will have to carry attachments points for individual claims of at least $35,000, a threshold that increases to $40,000 in 2016.
For aggregate claims under the law, Senate Bill 161, attachment points must be set at whichever is greater: $5,000 multiplied by the number of covered employees, 120 percent of expected claims, or $35,000 ($40,000 after 2016).
With self-funding being seen as an increasingly financially attractive option to employers, there was some opposition in the business community to the idea of baseline limits for stop-loss policies.
The new law "will make the risks of self-funding too great and cause workers to lose their health benefits," John Kabateck, executive director of the National Federation of Independent Business California chapter, argued in a Contra Costa Times op-ed.
"This is exactly the type of law that makes operating a small business in California so difficult," he wrote.
However, stop-loss policies that took effect as of September will be allowed to continue under a grandfathering provision, so long as the attachment points are not reduced in the future.
While California set minimum thresholds for stop-loss to kick in, other states have taken varying approaches.
New York and Oregon prohibit the sale of stop-loss coverage for small employers. Colorado, Maryland, Minnesota and to some extent Rhode Island all set minimum attachment points establishing when stop-loss applies.
Minnesota requires stop-loss policies to cover all claims incurred during a contract period, regardless of when claims are processed and paid, to protect employers from claims above the attachment threshold that aren't submitted or processed until after the end of the plan year.