States should start tracking self-funding and stop-loss trends, as some self-funding employers may be exposing themselves to high financial and legal risk, a new report from the Georgetown University Health Policy Institute and the Urban Institute suggests.
As a way to control upfront costs and avoid some of the Affordable Care Act's requirements, small businesses may increasingly be looking to self-funded health plans, especially if they have younger, healthier workers.
But there is scant data on the extent of self-funding, with no state able to report the actual number of employers self-insuring or buying stop-loss coverage, researchers Kevin Lucia, Christine Monahan and Sabrina Corlette found in an ongoing study funded by the Robert Wood Johnson Foundation.
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To find a sense of the self-insured market, the researchers interviewed small businesses, insurance agents, insurers and state regulators in Alabama, Colorado, Maryland, Michigan, Minnesota, New Mexico, New York, Oregon, Rhode Island and Virginia.
A key theme that emerged, the researcher said, is a concern that self-funding exposes small businesses to too much financial and legal risk, even as the option becomes attractive as a way to control upfront costs in times of rising premiums and more complex regulations.
Said one insurance regulator in Alabama, which does not regulate stop-loss coverage: "If I had a small business, I wouldn't even think that way because only one or two claims could bankrupt you."
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Only a handful of states regulate stop-loss coverage, the researchers found, with varying policies, such as setting minimum attachment points, banning stop-loss coverage for small employers or regulating stop-loss coverage under the same framework as fully insured plans in the small group market.
New York and Oregon prohibit the sale of stop-loss coverage for small employers, while Colorado, Maryland, Minnesota and to some extent Rhode Island all set minimum attachment points establishing when stop-loss applies. Minnesota also 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.
Aside from those states, few legislatures elsewhere are likely to consider the issue, the researchers found. At the least, though, they say "states would be well served to improve monitoring of the stop-loss market and trends in self-funding by small groups, so they can identify if changes in the marketplace are occurring and respond appropriately."