BILL ANALYSIS Ó
SB 161
Page 1
Date of Hearing: August 14, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 161 (Hernandez) - As Amended: August 6, 2013
Policy Committee: HealthVote:16-3
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, reissued, or
renewed on or after January 1, 2014 to a small employer from
containing any of the following provisions. The bill
establishes different amounts after January 1, 2016, as shown
in parentheses:
a) An individual attachment point for a policy year that is
lower than $35,000 ($40,000 in 2016).
b) An aggregate attachment point for a policy year that is
lower than the greater of one of the following:
i) $5,000 times the total number of covered employees
and dependents.
ii) 120% of expected claims.
iii) $ 35,000 ($40,000 in 2016).
a) A provision for direct coverage of an employee's health
claims.
1)Exempts stop-loss policies already in effect and subsequently
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renewed from restrictions in (3), above.
2)Authorizes the Insurance Commissioner (IC) to adopt
regulations.
3)Requires stop-loss insurers to report to the California
Department of Insurance (CDI) the number of small employer
stop-loss policies they have issued, and whether policies are
for group of 2-50 or 51-100 employees.
FISCAL EFFECT
Potential one-time costs not likely to exceed $150,000
(Insurance Fund) to the California Department of Insurance (CDI)
if regulations are necessary. Ongoing costs to receive required
reports should be minor and absorbable.
COMMENTS
1)Rationale . 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. This
bill is intended to protect the small-group health insurance
market from adverse selection by requiring small businesses
that self-insure for health benefits to take on a meaningful
level of risk. The bill does this by eliminating the ability
of insurers to offer self-insurance coupled with very low
attachment-point stop-loss products as a low-cost alternative
to the fully insured, regulated market. The author believes
this will reduce the ability of insurers to "cherry-pick"
low-risk groups for self-insurance/stop-loss products. If
stop-loss products are not regulated, he contends, businesses
with low-risk, low-cost employees may choose to self-insure in
greater numbers, leaving only businesses with higher-cost
employees in the fully insured market to face rising premiums.
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
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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.
This bill is based loosely on the 1995 Model Act, which
outlaws individual attachment points lower than $20,000 and
aggregate attachment points of $4,000 times the number of
group members. An NAIC working group began a process of
updating the Model Act to reflect more modern claims
experience, but last year voted against updating the model
law.
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 small employers begin to 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."
A rapid 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
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be administered by the California Health Benefit Exchange
beginning in 2014. This bill removes the ability of insurers
to offer very low attachment-point products that are meant to
compete with health insurance products and are effectively
"self-insurance in name only."
5)Prior Legislation . SB 1431 (De Leon) of 2012 would have set
the stop-loss insurance attachment point for small employers
on policies issued on or after January 1, 2012, at $45,000 per
individual and the greater of $15,000 times the total number
of covered employees and dependents, 130% of expected claims,
or $60,000 in the aggregate. SB 1431 died on the inactive
file on the Assembly Floor.
6)Opposition . Some insurers and some small business groups
oppose this bill, citing their belief that the attachment
point required by this bill is too high.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081