In Technical Release No. 2014-01, the Department of Labor’s Employee Benefit Security Administration (EBSA) notes that a state law that prohibits insurers from issuing stop-loss contracts with attachment points below specified levels would not be preempted by ERISA.
Background. Self-insured employer plans are generally not subject to state health insurance laws, and they are not subject to some of the requirements under the Patient Protection and Affordable Care Act (ACA) that apply only to health insurance issuers. Self-insured plans are subject to the ACA’s consumer protections, however, such as the group market reform requirements.
Employers that sponsor self-insured group health plans, especially small employers, generally reduce their risk by purchasing stop-loss insurance. Stop-loss contracts protect against claims that exceed a set amount (called an attachment point). For example, the contract may pay claims for a single enrollee once they exceed $500,000 in claims for a plan year. It also may cover all claims that exceed 125 percent of expected claims per plan year across all covered employees. The employer self-insures claims costs below these attachment points.
Low attachment points. Unless prohibited by state law, a stop-loss insurer might offer self-insured employers with policies that have attachment points set so low that the insurer assumes nearly all of the employer’s claims risk. For example, the attachment point could be set at $5,000 per employee, or $100,000 for a small group. The EBSA noted that these kinds of policies effectively gives nearly all the risk protections of a conventional insured plan without the consumer protections required for such policies.
According to the EBSA, states have been uncertain of their ability to regulate the use of stop-loss insurance by self-insured group health plans governed by ERISA. The National Association of Insurance Commissioners (NAIC) has adopted a model law that prohibits the sale of stop-loss insurance with a specific annual attachment point below $20,000. For groups of 50 or fewer, the aggregate annual attachment point must be at least the greater of: (i) $4,000 times the number of group members; (ii) 120 percent of expected claims; or (iii) $20,000. For groups of 51 or more, the model law prohibited an annual aggregate attachment point that was lower than 110 percent of expected claims.
The EBSA takes the view that a state law that prohibits insurers from issuing stop-loss contracts with attachment points below specified levels would not be preempted by ERISA. About ten states have enacted laws using the same approach as the NAIC model, and thus far, there have not been challenges to these laws based on ERISA preemption.
For more information, visit http://www.dol.gov/ebsa/newsroom/tr14-01.html.
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