Self-Insurance Sham?

Author:Ms Cynthia Moore
Profession:Dickinson Wright PLLC

One way that employers seek to control health plan costs is by self-insuring the plan. By self-insuring, an employer pays only the cost of claims plus an administrative fee to a third party administrator. An employer can insure against the risk of catastrophic claims by purchasing stop loss insurance. An added benefit is that self-insured plans are exempt from most State insurance laws, such as laws mandating that certain benefits be covered. This gives an employer with a self-insured plan more flexibility to design the health plan to control costs and meet the needs of its employees. Although traditionally only large employers have self-insured their health plans, news reports indicate that more small employers may be considering the self-funding alternative.

On May 1, 2012, the Departments of Labor, Treasury, and Health and Human Services issued a Request for Information Regarding Stop Loss Insurance, in which the Departments asked a series of questions about stop loss insurance for health insurance plans. Stop loss insurance allows an employer to self-insure for a fixed amount of claims, with stop loss insurance covering the remainder of the clams that exceed the fixed amount, called the "attachment point."

Under the principles of ERISA preemption, employers and health plans that purchase stop loss insurance generally are not subject to State insurance laws including mandated benefit laws, rating policies, and other State and Federal consumer protections applicable to health insurance, including some of the patient protections under the Patient Protection and Affordable Care Act ("Affordable Care Act"). Some experts have suggested that certain small employers (particularly those with healthy employee populations) may choose...

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