Stop-Loss Policies, How Low Can You Go?

by Bryan Cave
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On April 5, the “Self-Insurance Protection Act” passed the House and moved to the Senate.  This bill, if enacted, would amend ERISA, the Public Health Service Act and the Internal Revenue Code (the “Big 3” statutes containing ACA rules) to exclude from the definition of “health insurance coverage” any stop-loss policies obtained by self-insured health plans or a sponsor of a self-insured health plan.  No additional guidance is given regarding what would constitute a “stop-loss policy” under the proposed definition.  According to this fact sheet from one Congressional committee, the law appears to address concerns that HHS might one day decide to try and regulate stop-loss insurance.  In our opinion, that seems unlikely under the current administration, but it could be a regulatory priority in future administrations.

But what does the Self-Insurance Protection Act mean for state regulation of stop-loss insurance?

As the Department of Labor noted in a prior technical release (and as we have written about previously), states have been attempting to regulate stop-loss insurance and have previously sought to include stop-loss insurance in the definition of “health insurance coverage” under certain circumstances (i.e., policies with attachment points below specified amounts).  However, such laws have been found to be preempted by ERISA.  In comparison, and as the DOL notes, state laws prohibiting insurers from issuing stop-loss policies with attachment points below specified thresholds are generally not preempted because they regulate insurance, which is an exception from ERISA preemption.  The upshot of this is that a state generally cannot force a stop-loss policy with a low attachment point to act like a regular medical policy, but a state could prevent the sale of that stop-loss policy.

It appears that the Self-Insurance Protection Act, in its current form, merely gives an additional argument that stop-loss policies cannot be treated like major medical insurance, no matter how low the attachment point is.  This is like the proverbial “belt and suspenders” since treating stop-loss like major medical insurance has been found to be preempted in some cases.  The only additional protection is that the federal government would also be prevented from regulating stop-loss like regular health insurance.  However, in its current form, the act does not prevent states from requiring stop loss policies to have a minimum attachment point.

In other words, this Act, if it becomes law, would not dramatically change the landscape for stop-loss policies. For most employers considering self-insurance, the key factor from a stop-loss perspective remains understanding what kinds of stop-loss policies your state will allow.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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