Feds Seek Input on Catastrophic Health Insurance

May 1, 2012

On May 1, the Internal Revenue Service, the Employee Benefits Security Administration of the Department of Labor and the Department Of Health And Human Services, Centers for Medicare & Medicaid Services issued a “Request for Information Regarding Stop Loss Insurance,” also known as castrophic health insurance.

This request for comments can be read here. The departments are requesting comments to “contribute to their understanding of the current and emerging market for stop loss products.” They have posed 13 specific questions to the public.

Stop loss insurance allows an employer to self-insure for a set amount of claims costs, with the stop loss insurance covering most or all of the remainder of the claims costs that exceed the set amount, generally referred to as the “attachment point.” Attachment points can be either “specific” (per individual) or “aggregate” (an overall limit for the employer) or both.  Employers may or may not use third party administrators for the self-insured part of employee coverage. This approach may be substantially less expensive than traditional health insurance.

This request is likely to be a prelude to increased regulation of the stop loss (catastrophic) health insurance market with the aim of making this form of employer provided health insurance less attractive and more expensive, as has recently been proposed in California. It has been suggested that some small employers with healthier employees may self-insure and purchase stop loss insurance policies with relatively low attachment points to avoid being subject to the regulation that regular health insurance policies are subject to under the Patient Protection and Affordable Care Act and state law regarding rates, coverage and other matters.

The departments believe that “[t]his practice, if widespread, could worsen the risk pool and increase premiums in the fully insured small group market, including in the Small Business Health Options Program (SHOP) Exchanges that begin in 2014.”