SB 1431, the measure to increase stop-loss limits and change
other items for self-funded plans, is off the table this year but could
be revisited next year.
"SB
1431 would have required employers to self-insure at least $45,000 per
employee per year before seeking reimbursement for costs above that
amount from the stop-loss carrier. This arbitrary dollar amount would
have made this type of health care coverage too financially risky for
many firms that choose this type of coverage", says Mark Christian,
Director of Legislative Affairs for AIA, California Council.
Health
care plans are termed fully funded and self-funded plans. A fully
funded plan charges the same premium whether few claims, or several are
made. Subsequent premium increases for the following year are based on
group and pooled company claims experience. Self-funded plans pay claims
as they are incurred. Raising stop-loss limits for self funded plans
would jeopardize the existence of one of the industry's best-cost
reduction methods- self-funding.
Don't Shoot the Messenger
Kevin
De León, (D-Los Angeles) had introduced SB 1431, which would place some
limits on stop-loss insurance. California Insurance Commissioner Dave
Jones, speaking at a committee hearing, said stop-loss insurance
threatens the success of the state's benefit exchange.
The key
question is which system offers real incentives to hold the cost of
insurance down? The answer is self-funded. Self-funded insurance
policies transfer risk from the carriers to the firms, who have a vested
interest in keeping their employees healthy, and typically design
wellness programs suited to their own demographics. The most effective
wellness programs are those that keep employers aware of possible
catastrophes before they occur.
Self- funded plans are more likely
to provide effective wellness programs than fully funded plans because
they are "hands-on" as company executives directly participate in
controlling costs.
The idea that self-funding threatens the
success of the insurance exchange suggests that the exchange business
model is not self-sufficient. A business model for the exchanges should
rest on it's own merits and not interfere with a successful business
model, self-funding, a concept that has lowered health care costs for
decades. Why shoot the messenger?
Proponents of SB 1431 say that
self- insurers are cherry picking good risk companies. Insurance is a
zero sum game, whether it is offered on an exchange or on a self funded
basis. The party who can best control costs are the insured, not a
carrier, an exchange, or a third party. Why shoot the messenger?
What does this mean?
There
is no doubt that health care costs are on an unsustainable path. The
benefits of health care reform give everyone an opportunity to obtain
care. The challenges will be funding and pinpointing real medical
inflators. This chapter remains to be written.
Fully funded plan
lacks the incentive to control costs by not addressing the specific
groups health pattern since premiums are reflective of a pooled set of
insurance risks. The irony is that carriers offering fully funded plans
are themselves self-funded, and utilize reinsurance to capture
unanticipated, higher than expected claims. It is ironic that the PPACA
wanted to hamper a stop loss methodology used by carriers who will
provide fully funded plans to the exchanges. Without reinsurance, i.e.
stop-loss, insurance carriers would not survive large claims.
Exchanges
offering fully funded plans and self-funded plans should compliment one
another. For example, if a self-funded group has a high claims year and
opts to join the exchange, it will do so with a bad claim year behind
them, in most cases, thereby deeming the group as healthy, or
normalized.
The danger in consolidating all groups into a "one
size fits all" strategy could sacrifice quality of care, bureaucracy and
loss of control.
Furthermore, how can a successful business model
that self- contains health care costs be a loophole? If companies are
forced to merge into and exchange because self funding is no longer
feasible, does this not result in spending good money (tax payer
dollars) after bad money (higher mixed premiums from the pooled
exchange) in the form of higher costs?
Self Funding, Not a Panacea
Self-funding
is a hands-on approach, which requires a commitment and may not be for
everybody. Self-funded groups are not immune to large claims and sky
rocketing rates but are superior in discretionary spending and cost-
cutting abilities. Hence, the Kaiser Family Foundation, in 2010, cited
self-funded plans averaging premiums 8% to 10% lower than fully funded
plans.
In Summary, a focus on eliminating medical inflation and the true
costs is needed next. Self-funded plans need to be an adjunct to this
battle and should not be viewed as part of the problem but part of the
solution, as they have always been. The legislature should leave
self-funding stop loss limits alone in 2014 and thereafter.
John
Buckley is a health care agent, at John Buckley Advisors, a supporter of
health care reform and efforts to find the root causes of health care
inflation.
