Crackdown on small-business healthcare self-insurance faces delay
Efforts to more closely regulate a controversial form of healthcare self-insurance being sold to small employers ran into business opposition in the final weeks of the Legislature’s session and got shelved for now.
But California Insurance Commissioner Dave Jones and other backers of the crackdown on company self-insurance vow to bring back the legislation, possibly during a special session on healthcare expected in December.
“We think with a little more time we will be able to educate lawmakers about the threat posed by this loophole” in the federal Affordable Care Act, Jones said. “Our goal is to address this before 2014,” when consumers and businesses start buying policies in the state insurance exchange.
Supporters of more regulation fear that these plans will appeal to companies with healthier workers and, as a result, boost premiums for businesses remaining in typical group plans. Jones said that would undermine a key aspect of the federal healthcare law: to lower premiums by pooling together more healthy and sick workers.
The California Chamber of Commerce, National Federation of Independent Business and insurers such as Cigna Corp. fought the bill on the grounds that government shouldn’t eliminate an option for small employers, particularly in a tough economy.
“We put up enough resistance that legislators decided they needed to regroup,” said Mike Ferguson, chief operating officer for the Self-Insurance Institute of America Inc., an industry trade group. “In this economic climate, the last thing you want to do is make it more difficult for companies to provide health benefits to workers, and that is exactly what this legislation would do.”
State regulators elsewhere as well as federal officials have been watching this debate in California closely because they are concerned that these policies will proliferate nationwide. Many employers already face difficult decisions on how to comply with the federal healthcare overhaul and are weighing new options from insurance exchanges that will open in 2014.
Normally, larger employers tend to self-insure because they have the financial resources to pay for expensive medical claims on their own. Now insurers are pursuing smaller customers with new plans designed to limit employer payouts for big claims through stop-loss policies.
Such policies guarantee that small employers won’t be responsible for medical payments more than a certain amount per employee, perhaps as low as $10,000 or $20,000, with the rest paid by an insurer. Regulators and health-policy experts said this arrangement undercuts the notion of self-insurance because employers aren’t bearing much of the risk.
Initially, state officials sought to ban stop-loss coverage below $95,000 per employee, raising the stakes for an employer. Lawmakers eventually reduced that to $45,000 per person in the latest version of the bill. The legislation passed the state Senate, but lawmakers put the bill on hold before it reached a final vote in the Assembly.
Jones said Insurance Department actuaries have recommended $75,000 per employee as an appropriate stop-loss limit. Cigna, a leading seller of these plans, said it supports “reasonable” regulation and cited a study that suggested limits of $20,000 to $30,000 per employee.
Some small-business advocates and at least one major insurer, Blue Shield of California, backed the state’s efforts as a means to prevent cherry-picking of healthier companies. Insurers and agents that sell these self-insurance plans deny that they target businesses with younger workers or lower medical claims.
“Without the protections of this bill, the state’s small-group market — where the vast majority of small employers purchase their healthcare coverage — could be subject to skyrocketing costs,” said John Arensmeyer, chief executive of Small Business Majority, an advocacy group that supports the federal healthcare law.
About 3 million Californians get health coverage through small businesses with fewer than 50 employees, and 15 million are insured through larger employers, according to the California HealthCare Foundation.