BILL ANALYSIS Ó
SB 1431
Page 1
Date of Hearing: August 16, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 1431 (De Leon) - As Amended: August 7, 2012
Policy Committee: HealthVote:13-5
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill establishes rules governing the sale of stop-loss
insurance to small employers. Specifically, this bill:
1)Prohibits a stop-loss carrier from excluding any employee of a
small employer or dependent on the basis of actual or expected
health status-related factors, and guarantees renewability of
stop-loss coverage, subject to specified criteria.
2)Defines "attachment point" as the total amount of health
claims incurred by a small employer in a policy year for its
employees and their dependents above which the stop-loss
carrier incurs a liability for payment.
3)Prohibits stop-loss insurance policies issued on or after
January 1, 2012 to a small employer from containing any of the
following provisions:
a) An individual attachment point for a policy year that is
lower than $60,000.
b) An aggregate attachment point for a policy year that is
lower than the greater of one of the following:
1) $15,000 times the total number of covered employees
and dependents.
2) 130% of expected claims.
3) $ 60,000.
a) A provision for direct coverage of an employee's health
claims.
1)Exempts stop-loss policies already in effect and subsequently
renewed from restrictions in (3), above.
SB 1431
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2)Authorizes the Insurance Commissioner (IC) to adopt
regulations.
FISCAL EFFECT
1)Potential minor costs, in the range of $25,000 (Insurance
Fund) to the California Department of Insurance (CDI) if
regulations are necessary.
2)Unknown costs to Medi-Cal, potentially in the millions of
dollars annually (50% GF, 50% federal), if more individuals
become Medi-Cal eligible as a result of small employers
dropping coverage, given this bill's new requirements for
stop-loss coverage. A RAND microsimulation study estimated
that on a national level, Medicaid enrollment would increase
by 3% if the self-insurance option were eliminated for
businesses with fewer than 100 employees.
3)On the other hand, depending on the dynamics of the
marketplace over the next several years, this bill could
potentially mitigate future increases in Medi-Cal costs by
reducing premiums in the Small Business Health Options (SHOP)
portion of the Exchange, thereby encouraging more employers to
offer coverage through the Exchange. The RAND study cited
above also predicts banning self-insurance would lead to lower
premiums in the Exchange, as more employers would participate
and adverse selection would be minimized. Given complicated
and unpredictable market dynamics, it is difficult to estimate
any potential cost savings, and to what extent they would be
blunted by higher Medi-Cal enrollment from employers dropping
coverage altogether.
COMMENTS
1)Rationale . This bill is intended to protect the small-group
health insurance market from rising premiums and adverse
selection as federal health care reform law is implemented.
The author believes specifying minimum attachment points will
reduce the prevalence of cherry-picking among insurers
marketing stop-loss coverage to small businesses. This bill
is sponsored by the Insurance Commissioner. Many insurance
reforms instituted by the federal Patient Protection and
Affordable Care Act (ACA) limit or eliminate adverse selection
from the health insurance marketplace, and this bill intends
to further that aim.
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2)Background . Small businesses have choices about whether and
how to offer health insurance to their employees. Generally,
businesses can choose to fully insure (purchase insurance from
a third party) or self-insure. Self-insurance is governed by
the federal Employee Retirement Income Security Act of 1974
and is not regulated by states.
Self-insured businesses directly pay for the health care of
their employees, and often purchase stop-loss coverage to
guard against the small possibility of extremely high medical
costs. With a stop loss plan, the employer pays claims up to
a specified threshold or attachment point (defined as a
per-participant amount or an aggregate plan amount), after
which the stop-loss policy pays any excess claims.
3)NAIC Model Act . The National Association of Insurance
Commissioners (NAIC) developed the Stop-Loss Insurance Model
Act (Model Act) in 1995, in order to prevent insurers from
avoiding laws regulating the health insurance marketplace by
structuring their products as stop-loss coverage sold to
employers that were purportedly self-insured, but did not
actually retain a significant portion of the plan's risk. The
NAIC is in the process of updating the Model Act to reflect
more modern claims experience. The specific attachment points
in this bill (such as the $60,000 per individual figure) are
based on actuarial analysis commissioned by NAIC, with a goal
of ensuring financial risk is appropriately shared by the
employer and stop-loss issuer, and are under consideration for
adoption by NAIC as an update to the Model Act.
4)Impact of Self-Insurance On Insurance Markets . It is possible
that very low stop-loss attachment points could undermine the
integrity of a broader risk pool of small business employees,
if certain small employers use self-insurance as a way to
avoid buying coverage within the broader small-group market.
Plans in the small-group market are subject to stringent
minimum coverage requirements and other rules that do not
apply to self-insured arrangements, and rules will become even
more stringent with full implementation of the ACA in 2014.
One example of marketing materials from a stop-loss insurer
targets healthier-than-average employee groups and emphasizes
the ability to " to create a self-funding plan that lets you
stop subsidizing other groups and reap the savings of your
group's good health."
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Expansion of self-insurance may increase average premiums in
the small-group health insurance market by removing young,
healthy people from the risk pool. There are concerns that
this may undermine the risk pool of participants in the Small
Business Health Options Program (SHOP) that will be
administered by the California Health Benefit Exchange
beginning in 2014. A 2011 report by the RAND Corporation
estimates at a national level, removing the option for small
businesses to self-insure would lower premiums in Exchanges by
3.3%. This report suggested a modest level of adverse
selection would occur, but that it would not be at a level
that would be destabilizing to the marketplace. A separate
Mathematica report commissioned by the NAIC consumer advocates
suggests the RAND report underestimates the potential for
adverse selection and impact on the Exchange.
5)Opposition . Insurers and some small business groups oppose
this bill, citing their belief that the attachment point
required by this bill is far too high and will effectively
eliminate the option for small businesses to self-insure.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081