Is Stop Loss Insurance the Big Bad Wolf?
Stop Loss Insurance is a product that protects companies who forgo typical commercial insurance plans in favor of a self-funded plan. Stop loss coverage limits the liability a company has when losses in its self-funded plan exceed certain limits. A critical difference between stop loss coverage for employers and employee benefit insurance is that stop loss does not cover the participants of the health plan, but only the employer.
Recently, the National Association of Insurance Commissioner’s consumer representative Timothy Jost spoke out and said that he believes the NAIC should amend their stop-loss coverage rule to ban smaller employers from using this type of insurance, along with raising the minimum attachment points when stop loss coverage would kick in. His reasoning is based on the fact that self-insured programs are exempt from certain requirements, and as a result, the “un-regulated” plans can take advantage of their participants when it comes time for determining benefits. The NAIC believes that raising the stop loss minimum will therefore encourage small employers to adopt commercial plans, which have more regulation. The NAIC is wrong. Here’s a list or reasons why stop loss insurance is not as bad as the NAIC would like to think:
1. People in self-funded plans report being no less satisfied with their coverage than do people in fully insured plans. This comes straight from the Department of Labor and Health & Human Services, two influential organizations whose interests are in protecting the rights and benefits of individuals. The NAIC is concerned with self-funded plans taking advantage of their plan participants, and yet there isn’t any indication that a problem exists.
2. Recent studies show that self-funded plans offered by small and medium sized firms covered the same proportion of expenses as fully insured plans do, but with less costs and oftentimes, a wider array of benefits. Is it really a bad thing that companies are providing the same coverage to their employees for less money? The Deloitte Analytical Consulting Group found from the Department of Labor report that average fully insured premiums increased by $808 while average self-funding plans climbed by only $248, a vast difference.
3. Reducing risk is not a bad thing. If insurance companies are willing to sell stop loss insurance to small self-funded plans, then why is that a bad thing?
4. Restricting self-funding results in higher health care costs. The restriction or reduction of self-funded programs will result in higher health costs to employees because it reduces competition among payers. Less competition is bad for plan participant’s wallets.
5. Self-insured employers are responsible for paying claims before seeking reimbursements from stop loss carriers. A company is responsible for paying the full amount of medical bills before they seek reimbursement from stop-loss carriers. Additionally, there is no direct connection between the company and the plan participants, and stop loss coverage only covers the employers’ side of payment.
6. While the NAIC may argue that it’s too easy to purchase stop loss coverage for companies that self-fund, finding reasonable stop loss coverage is not always that simple, and is governed by market conditions. If it were too expensive, then companies would not be able to buy it and would find commercial programs more to their liking.
Stop Loss Coverage is in fact a very viable way for self-funded plans to continue to thrive and prosper as the healthcare climate continues to change. Restricting this coverage, or any other coverage for that matter, reduces the ability for companies to offer competitive healthcare coverage to their employees, which is the detriment to all parties involved.