BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 161 (Hernandez) - Stop-loss insurance coverage.
Amended: April 25, 2013 Policy Vote: Health 7-2
Urgency: No Mandate: No
Hearing Date: May 13, 2013 Consultant: Brendan McCarthy
This bill may meet the criteria for referral to the Suspense
File.
Bill Summary: SB 161 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 of about $90,000 per year for two years for
the Department of Insurance to adopt regulations (Insurance
Fund).
Minor ongoing enforcement costs to the Department of
Insurance (Insurance Fund.)
Unknown impact on Medi-Cal costs (General Fund and federal
funds). It is possible that some small businesses that
self-insure will elect to drop coverage for their employees
under this bill. To the extent that happens and those
employees are eligible for Medi-Cal, there could be an
increase in state costs. See below.
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.
SB 161 (Hernandez)
Page 1
"Stop-loss" insurance is used by self-insurers to protect
against large liabilities. Under a stop-loss policy, the
employer assumes the risk for health care costs (from individual
employees and/or in the aggregate) up to a certain point. Above
that point (known as the attachment point) the insurer agrees to
accept further liability for the cost of claims.
Proposed Law: SB 161 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;
Prohibit stop-loss carriers from issuing policies to
self-insured employers with an individual attachment point
below $65,000;
Prohibit a policy with an aggregate attachment point less
than $13,000 times the number of covered employees, 120
percent of covered claims, or $65,000.
Related Legislation: SB 1431 (de Leon, 2012) was substantially
similar to this bill. The final version of that bill required
individual attachment points of at least $45,000. That bill was
not taken up for a vote on the Assembly Floor.
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.
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 group market risk pool. This could, in turn, drive up
overall premiums in the small group market.
SB 161 (Hernandez)
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Because the bill puts limitations on the ability of small firms
to use stop-loss insurance as part of their self-insurance
strategy, the bill may reduce the likelihood that small
employers self-insure. It is possible that if self-insurance
becomes less attractive to small employers, some may elect to
drop coverage for their employees altogether. In that case, some
low-income employees may qualify for Medi-Cal. The extent to
which this will occur is unknown. The RAND Corporation made
projections in 2010 that elimination of self-insurance by small
employers would increase nationwide Medicaid enrollment by 1.6
million. However, the RAND study included firms with 100 or less
employees (whereas this bill only impacts firms with 50
employees or less) and that study assumed that no self-insurance
would be allowed. Thus, drawing conclusions about reactions by
small employers to this bill is difficult.