BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1431 (De Leon) - Stop-loss insurance.
Amended: May 1, 2012 Policy Vote: Health 5-3
Urgency: No Mandate: No
Hearing Date: May 14, 2012 Consultant: Brendan McCarthy
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: SB 1431 would impose certain requirements on
"stop-loss" insurance policies used by small employers that
self-insure for employee health benefits.
Fiscal Impact:
One-time costs up to $80,000 (Insurance Fund) to adopt
regulations.
Minor ongoing costs to enforce the bill's provisions
(Insurance Fund). The Department of Insurance may face some
costs to review policy filings and respond to customer
complaints under the bill. However, the bill's provisions
are likely to limit the use of stop-loss policies by small
employers, limiting overall enforcement costs.
Background: Beginning in 2014, the federal Affordable Care Act
requires health plans and health insurance policies sold to
individuals and small businesses to cover essential health
benefits. Federal guidance allows the states to select a health
plan to function as the benchmark plan for essential health
benefits. The Affordable Care Act prohibits health plans and
health insurers from denying coverage due to preexisting
conditions and limits the criteria that health plans and
insurers can consider when setting rates.
The above provisions of the Affordable Care Act do not apply to
businesses that self-insure for health care coverage.
"Stop-loss" insurance is used by self-insurers to protect
against large liabilities. Under a stop-loss policy, the
employer assumes the risk from health care costs (from
individual employees and/or in the aggregate) up to a certain
SB 1431 (De Leon)
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point. Above that point (known as the attachment point) the
insurer agrees to accept further liability for the cost of
claims.
Proposed Law: SB 1431 would impose certain requirements on
insurance carriers that provide stop-loss coverage to
self-insured customers with less than 50 employees.
Specifically, the bill would:
Require stop-loss carriers to offer coverage to all
employees and dependents of a small employer.
Prohibit the stop-loss carrier from excluding any employee
or dependent based on actual or expected health factors.
Prohibits stop-loss carriers from issuing policies to
self-insured employers with an individual attachment point
below $95,000. The bill also prohibits a policy with an
aggregate attachment point less than $19,000 times the
number of covered employees, 120 percent of covered claims,
or $95,000.
Related Legislation:
SB 951 (Hernandez) would select the Kaiser Small Group HMO
plan as the state's essential health benefit benchmark plan,
pursuant to the federal Affordable Care Act. That bill is on
the Assembly Floor.
SB 1453 (Monning) 2011 is identical to SB 951. That bill is
on the Assembly Floor.
SB 961 (Hernandez) would conform the statutes governing the
state's individual health insurance market to the
requirements of the Affordable Care Act. That bill is on
this committee's suspense file.
AB 1461 (Monning) is identical to SB 961. That bill is on
the Assembly Appropriations Committee's Suspense File.
Staff Comments: Federal law preempts state regulation of
self-insured employers and does not apply most of the coverage
requirements of the Affordable Care Act to self-insured
employers.
SB 1431 (De Leon)
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Concerns have been raised that stop-loss insurance policies with
low attachment points may allow small employers (who often have
young, healthy employees) to use self-insurance as a way to
avoid the small group market, with its coverage requirements
under the Affordable Care Act. This would allow small employers
the ability to offer a lesser benefit package than would
otherwise be required, reducing costs for such small employers.
It also has the potential to remove young, healthy people from
the small market risk pool. This could, in turn, drive up
overall premiums in the small market.