Long before the Patient Protection and Affordable Care Act was first implemented in 2010, brokers have helped clients save money and avoid certain restrictions by introducing self-funded health plans as an option for business owners. For years, self-funded health plans have been a smart alternative for these clients to reduce their overall cost of benefits for their employees, and to have close, hands-on management of their plan by working with a third party administrator.
Successful self-funding by employers has two main components: First, developing a well-managed self-insurance program, and second, applying risk management procedures in the form of stop-loss arrangements. Stop-loss coverage, which reduces the financial risk associated with self-funding, protects the plan sponsor against catastrophic claims beyond a predetermined amount, known as the specific attachment point. Think of the attachment point as similar to the role of a deductible in an individual’s health insurance policy.
So what’s the issue? In early July, the National Association of Insurance Commissioners proposed guideline revisions to the current stop-loss model act, effectively raising the minimum specific attachment point for stop-loss insurance from $20,000 to $60,000, and the aggregate attachment point from $4,000 per plan employee to $15,000 per plan employee. By tripling the minimum attachment point, small employers will be forced to take on more financial risk – and will no longer be able to justify the risks and rewards of a self-funded benefits program.
Although the overall goal of PPACA is to increase the insured population, approving the proposal by the NAIC will have the opposite effect. The changes to self-funding presented in this proposal will require business owners and plan sponsors to decrease or eliminate benefits offerings for employees if they can’t afford the higher attachment point - further decreasing the insured population in the United States.
Instead of providing employers with the ability and access to affordable coverage for their employees in a manner of their choice, there will be little choice but to eliminate a customized benefits plan and employers will have to throw their employees into the insurance exchanges that will be created under PPACA.
Restricting an employer’s options to design effective benefit plans also removes their flexibility to imbed health and wellness programs into their overall benefits package in an affordable manner.
While employers are concerned on how offering little to no structured health benefits will affect their ability to attract and retain talented employees, brokers
should also be concerned about this proposed change as it could significantly limit their product offerings and alternatives for clients. In the wake of health care reform, brokers have struggled to diversify their business models and have helped many small clients initiate self-funded plans when they might not have been able to in the past.
If the attachment points are raised, brokers will then need to be concerned about how the change essentially traps their clients and removes their options for affordable care – effectively forcing them into state exchanges and eliminating the role of the broker.
Though summer has come to an end, the battle for self-insurance is just heating up. Most recently, California’s insurance commissioner, Dave Jones, rose to notoriety when he proposed a bill to limit the sale of stop-loss insurance to businesses in his state with less than 50 employees unless they could afford the increased specific attachment point in his state.
However, on August 28, it was confirmed that the bill was moved to inactive status and will potentially be revisited this year. This is a step in the right direction, but in Michigan, for example, the recently enacted Health Care Claims Assessment Act imposes a 1% tax for state residents on all health care claims incurred in the state. One step forward, two steps back.
While there is still a long way to go to secure the rights of small businesses to provide self-insured plans to their employees under PPACA, the Self-Insurance Institute of America is ready for battle. They recently brought suit against the state of Michigan, contending that the Health Care Claims Assessment Act was preempted by the Employee Retirement Income Security Act. While the suit was dismissed, SIIA is now gearing up to file an appeal to be reviewed by the Sixth Circuit Court of Appeals.
With the effect it could have on their business, brokers should learn all they can about the attack on self-funding and stay educated on the latest proceedings by visiting SIIA’s website at
Fleet is president of AmWINS Group Benefits, a wholesale broker of comprehensive group insurance programs and administrative services. He can be reached at asksam@amwins.com.
