The Patient Protection and Affordable Care Act (PPACA), better known as Obamacare, set to take effect January 1, 2014, will make sweeping policy changes to America’s health care and insurance industries. The self-funding niche of the health insurance market, where employers forgo premium payments and fund their own medical costs, was on track to survive relatively unscathed by the new taxes, requirements and restrictions created by the PPACA. However, self-funding and stop-loss insurance are increasingly attracting the attention of lawmakers. As a result of increasing regulation, the sanctuary that has been dubbed the “self-insurance loophole” is shrinking.
Self-funded health plans are an enticing option for small and mid-sized businesses seeking to avoid the rising costs and diminishing flexibility that accompanies Obamacare. According to a paper published in a June 2013 by the Center for American Progress, too many small businesses electing to self-fund will jeopardize the small business exchanges. Insufficient risk pools as well as overly aged and unhealthy populations, resulting from the small business migration to self-funding, will drive up the cost of the fully-insured plans available online.
Politicians wanting to keep healthy employees in the general pool of health insurance purchasers proposed the elimination of the self-funding through further regulation. Methods of regulating self-funding to conform to the goals of Obamacare include establishing minimum deductible levels for self-funded policies, requiring the purchase of stop-loss insurance, and preventing insurance companies that offer stop-loss policies to small businesses from entering the exchanges.
Examples of States’ attack on Self-Funding
Several states have already proposed or enacted self-funding legislation.
- Minnesota, Rhode Island, and Utah have all proposed legislation to regulate the use of self-funded policies. Both Minnesota and Rhode Island suggest to prohibit stop-loss insurance carriers’ from offering policies with attachment points lower than $60,000; deterring smaller businesses that cannot assume a greater risk from self-funding.
- California enacted a law, SBS 161, on October 1st, which regulates stop-loss insurance by establishing minimum attachment points at $35,000 or $40,000 depending on when the policy was created and forbidding carriers from exclusions based on health related factors. California admittedly passed the legislation as a show of support for the Patient Protection and Affordable Care Act and in response to the recent government shutdown.
It is hard to say how many other states will follow suit with an additional host of regulations but we do know that for the most part the environment remains favorable for even small businesses to self-insure.