The new PPACA stop-loss guidance: What agents should know

Nov 10, 2014 | By Allison Bell

State insurance regulators want to keep small, self-insured employers from using stop-loss plans with very low attachment points to escape from many Patient Protection and Affordable Care Act (PPACA) requirements.

The 4th U.S. Circuit Court of Appeals ruled in 1997 that the Employee Retirement Income Security Act (ERISA) prevents states from using stop-loss rules to impose mandates on group health plans protected by ERISA.

Now the Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, is trying to keep backers of stop-loss plans with very low attachment points from using the 1997 decision, American Medical Security Inc. vs. Bartlett, to ward off state efforts to impose new limits on use of stop-loss arrangements.

EBSA officials explain why the Labor Department believes that states can set and increase minimum attachment points for stop-loss plans in a new batch of guidance, Technical Release Number 2014-01.

In theory, if the backers of the low-attachment-point stop-loss plans could use American Medical Security vs. Bartlett to ward off new stop-loss rules, maybe they could use similar arguments to ward off other state regulator efforts to reconcile PPACA implementation with ERISA.

1. The 4th Circuit looked the interaction of ERISA and state stop-loss rules long before PPACA came to life.

Self-insured employers use stop-loss arrangements to protect themselves against catastrophic losses. Stop-loss benefits kick in when an employee's covered claims exceed a specific attachment point, or deductible.

Regulators normally assume that a self-insured group health plan is governed by ERISA. The drafters of ERISA have tried to help large employers and multi-state employers minimize the hassles of dealing with differences in state health insurance rules by exempting self-insured group health plans from state health insurance mandates.

For years, state regulators have complained about employers using stop-loss plans with very low attachment points to disguise ordinary health insurance plans as mandate-free self-insured plans.

In the 1990s, Maryland tried to set the specific attachment point minimum at $10,000 to keep small employers from using self insurance to evade mandates. The state ruled that employers with stop-loss plans with lower attachment points should have to comply with the same requirements that applied to state-regulated group health plans.

The 4th Circuit ruled against Maryland. That decision "predated enactment of the Affordable Care Act," and, even in that case, the judge said states generally have the right to regulate the sale of stop-loss insurance, EBSA officials say. 

2. Federal regulators say state regulators can address the issue by tweaking rules on minimum attachment points.

EBSA officials say the 4th Circuit invalidated the Maryland approach because Maryland tried to link the minimum attachment point rule directly with mandate requirements. Maryland later enacted a law that simply kept insurers from selling stop-loss plans with a specific attachment point of less than $10,000. "This law has not been held to be preempted by ERISA," officials say.

The NAIC adopted a stop-loss model that takes that same approach, and 10 states follow the NAIC approach, officials say. EBSA officials note that the Labor Department is the federal agency that administers ERISA.

The department "takes the view that states may regulate insurance policies issued to plans or plan sponsors, including stop-loss insurance policies, if the law regulates the insurance company and the business of insurance," officials say. "Insurance regulation of group health insurance clearly limits insurance policy choices available to third parties, including employee benefit plans."

States can take the NAIC model approach to limit employers' access to stop-loss insurance without violating ERISA, officials say.

3. The courts could eventually take another look at the matter.

EBSA officials say they will use the interpretation that states can continue to follow the NAIC's approach to stop-loss attachment point regulation.

The guidance would not keep federal courts from looking at the issue again but influence how state courts view the issue.

 

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