Affordable Care Act provisions that take effect in 2014 will make small-group insurance subject to community rating—meaning premiums can no longer vary based on employees' previous claims history, gender, or health status. But this market reform will not succeed in spreading risk across a larger pool or in avoiding adverse selection if low-risk groups are able to avoid community rating by self-insuring. Typically, employers that self-insure purchase stop–loss coverage to protect themselves from catastrophic losses. This Commonwealth Fund–supported study by Mark A. Hall looks at states’ legal options for regulating employer stop–loss coverage.
What the Study Found
Hall outlines three approaches states have taken to regulate stop–loss insurance coverage: 1) setting minimum "attachment points," which require carriers to reimburse employers for a set level of claims incurred by any one person or group; 2) prohibiting the sale of stop–loss coverage to small employers; and 3) regulating stop–loss coverage as if it were small-group health coverage. These approaches, particularly the third, may be subject to legal challenges based on ERISA, the Employment Retirement Security Act. Still, the Affordable Care Act itself might provide grounds on which to uphold states' right to regulate stop–loss coverage as part of their implementation of the federal law’s market reforms.
The states and federal government must develop a coordinated approach to dealing with stop–loss coverage regulation, Hall writes. "Doing so is essential for market reforms to succeed, and for insurers to compete based on providing the best value in coverage design and care management, rather than based on segmenting risks and exploiting regulatory loopholes."