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Full Effects of Maryland Law Raising Attachment Point for Medical Stop-Loss Insurance to Be Felt in 2016

Health Insurance Medical Stop-Loss Insurance Small Employers
H.B. 552 (2015) (Maryland General Assembly)

by Caroline E. Willsey, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

During its 2015 session, the Maryland Legislature passed H.B. 552, a bill that raises deductibles for self-insured small businesses. Specifically, H.B. 552 increases the minimum attachment point for medical stop-loss insurance from ten thousand dollars ($10,000) to forty thousand dollars ($40,000). Medical stop-loss insurance protects self-insuring small employers against catastrophic or unpredictable health insurance claims by kicking in after a certain threshold has been paid in claims. The bill took effect on June 1, 2015, but its effects are just beginning to be felt in 2016.

The bill has received significant criticism for limiting the insurance choices available to small businesses and deterring small businesses from self-insuring to provide coverage for employees. For many small businesses, self-insurance is more affordable than pursuing coverage in the fully-insured market. Prior to the passage of the Affordable Care Act (ACA), many small businesses could find group coverage at an affordable price, and a bill like H.B. 552 likely would have had little impact. Experts predict that the ACA’s ban on lifetime insurance claim maximums will lead to higher-severity claims. This puts tremendous pressure on self-insured employers to protect themselves against catastrophically large claims that could threaten the financial solvency of their companies. Self-insured employers therefore look to buy stop-loss coverage to guard against such claims.

Prior to the passage of H.B. 552, self-insured businesses with an average of 50 employees were only required to reach a threshold of ten thousand dollars ($10,000) paid in claims before stop-loss coverage was triggered. H.B. 552 raises that threshold to forty thousand dollars ($40,000).

Proponents of the bill argue that increasing the threshold to trigger medical stop-loss insurance raises the incentive for small businesses to purchase from the fully-insured market. The reason that this is so important, proponents argue, is that it avoids adverse selection in the fully-insured market. Adverse selection is an insurance phenomenon in which there are not enough young, health insured individuals paying premiums in the risk pool to offset the claims paid to older, less healthy individuals. The bill was supported by CareFirst BlueCross BlueShield, Maryland’s largest health insurer.

Critics of the bill argue that it will eliminate small business self-insuring, or at the very least, make it more difficult for small business owners who choose to self-insure to provide health coverage for their employees. Self-insuring is only a viable option for businesses with the financial resources to pay claims within their deductible. Raising the deductible means that small businesses take on more risk if they elect to self-insure to provide health coverage – particularly for small businesses with low cash flow. Medical coverage is often a powerful incentive in helping small businesses to attract and retain high-quality employees. Critics also say that while this will severely limit the insurance options for small businesses, it will have little benefit for national medical stop-loss insurance carriers. The National Federation of Independent Businesses and several local chambers of commerce opposed the bill.

In addition to increasing the attachment point, H.B. 522 imposes some additional requirements and prohibitions for medical stop-loss insurers providing coverage to small businesses. Medical stop-loss insurers may not (1) impose higher cost sharing for a specific individual within a small employer’s health benefit plan than is required for other individuals within the plan; (2) decrease or remove stop-loss coverage for a specific individual within a small employer’s health benefit plan; or (3) exclude any employee or dependent from a policy or contract based on an actual or expected health status-related factor or condition. Medical stop-loss insurers must (1) guarantee rates for at least 12 months; (2) pay stop-loss claims incurred during the policy or contract period and submitted within 12 months after the expiration of the policy or contract; and (3) disclose to the small employer the following: total costs, the effective and termination dates, renewal provisions, attachment points, and limitations on coverage.

 The bill is scheduled to terminate on June 30, 2018, conditioned upon completion of a study by the Maryland Insurance Administration (MIA) on the use of medical stop-loss insurance. The study will weigh the impact of H.B. 522, beginning in 2016, on both employers with 51 to 100 employees and state and local governments – including the number of small businesses that elect to drop stop-loss coverage. The study will also consider the incentives and disincentives for small businesses associated with the purchase of small group insurance in the fully-insured market compared to self-insurance with the purchase of medical stop-loss insurance. The study must consider the requirements for medical stop-loss insurance in other states as well as assess the desirability of adjusting the attachment point.

The bill is estimated to cost the state eighty thousand ($80,000) in special funds in 2016.