[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
SELF-INSURANCE AND HEALTH BENEFITS: AN AFFORDABLE OPTION FOR SMALL
BUSINESS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH AND TECHNOLOGY
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 14, 2013
__________
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Small Business Committee Document Number 113-042
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Chris Collins............................................... 1
Hon. Janice Hahn................................................. 2
WITNESSES
Mr. Michael W. Ferguson, President and Chief Executive Officer,
Self-Insurance Institute of America, Inc., Simpsonville, SC.... 3
Ms. Robin P. Frick, Combined Benefits Administrators, Inc.,
Madisonville, LA, testifying on behalf of the National
Association of Health Underwriters............................. 6
Mr. Thomas Faria, President, Sheffield Pharmaceuticals, New
London, CT..................................................... 7
Dr. Linda J. Blumberg, Senior Fellow, The Urban Institute,
Washington, DC................................................. 9
APPENDIX
Prepared Statements:
Mr. Michael W. Ferguson, President and Chief Executive
Officer, Self-Insurance Institute of America, Inc.,
Simpsonville, SC........................................... 30
Ms. Robin P. Frick, Combined Benefits Administrators, Inc.,
Madisonville, LA, testifying on behalf of the National
Association of Health Underwriters......................... 38
Mr. Thomas Faria, President, Sheffield Pharmaceuticals, New
London, CT................................................. 43
Dr. Linda J. Blumberg, Senior Fellow, The Urban Institute,
WAshington, DC............................................. 48
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Bill H.R. 3462............................................... 81
Chamber of Commerce of the U.S. of America................... 84
Letter from Lawrence Thompson, Regional President, POMCO
Group...................................................... 85
Statement for the Record from Rep. Bill Cassidy (LA-6)....... 87
Woodland Truck Line, Inc..................................... 89
SELF-INSURANCE AND HEALTH BENEFITS: AN AFFORDABLE OPTION FOR SMALL
BUSINESS?
----------
THURSDAY, NOVEMBER 14, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Health and Technology,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Chris Collins
[chairman of the subcommittee] presiding.
Present: Representatives Collins, Coffman, Luetkemeyer,
Huelskamp, Hahn, and Schrader.
Chairman COLLINS. Good morning. I want to thank everyone
for being with us today, and we want to take a look, I think it
is very appropriate, at the trend of smaller companies now
exploring self-insurance as a very viable option to provide
their employees with healthcare coverage. I appreciate all of
our witnesses taking time out of their business schedules to be
with us today.
Just last week, President Obama apologized to the 4.8
million Americans who had their insurance policies canceled
since this healthcare act was enacted. This includes 137,000
people in my area of Western New York. And while I appreciate
the president's apology, these cancelations represent just one
of the many broken promises and severe problems plaguing the
rollout of his signature legislation.
The list of issues with this implementation is staggering--
the bumbling of the healthcare.gov website; the 30-hour per
week definition of full-time employment; the medical device
tax; the health insurance tax; the cancelation of policies; and
of large concern to those of us who serve on this Committee,
small businesses facing significant increases in the cost of
their healthcare plans, upwards of 55-60 percent in some cases.
These are not issues that the president and the
administration will be able to resolve anytime soon. So as the
confusion continues, small businesses and the people they
employ continue to be left in the dark about what January 1,
2014, will mean to them, their healthcare needs, and the cost.
The subject of today's hearing is certainly not a magic
elixir that can solve all of these problems for every small
business, but it could be available option. Amid all of this
confusion, small firms need as many options as they can find to
keep their businesses moving forward and make money so they can
invest in the growth of their companies.
In a self-insured situation, an employer can choose to
assume all or a portion of the cost and the risks associated
with sponsoring a healthcare plan. Under this arrangement, the
employer forecasts how much it is likely to spend on health
benefits--it is usually an actuarial calculation--and then
decides whether or not it makes practical or economic sense for
that employer to pay these costs out of pocket or to purchase a
fully-insured product. Traditionally, small businesses have not
utilized the option to self-insure. According to the Kaiser
Foundation, only about 16 percent of employees at small firms
are currently covered by a self-insured policy, as opposed to
nearly 83 percent of employees at large firms. But with the
onslaught of regulations, cost increases, and uncertainty
surrounding fully-insured plans as a result of the president's
healthcare law, more small businesses may choose to explore
self-insurance as a manner of providing competitive benefit
packages for their employees. Some small business owners may
find that a self-insured policy would be cheaper as it may
offer them greater flexibility in designing the health coverage
they want to provide for their employees.
With that said, there are some potential disadvantages as
well, such as an instance of higher than expected employee
claims and additional administrative costs that could
discourage smaller firms from utilizing the self-insured plans.
We are not here today to advocate one method over the other,
but rather we are here to examine if self-insurance is a viable
for some businesses. When we say if, it really is, but that is
what we are going to cover today. And so we ought to continue
to preserve that option for small businesses, especially
considering the uncertainty surrounding the fully-insured
marketplaces Obamacare continues to be implemented.
Again, I want to thank everyone for being here today. I
look forward to the testimony. And before we do that I want to
yield to Ranking Member Hahn for her opening statement.
Ms. HAHN. Thank you, Mr. Chairman. I am pleased that we are
holding this hearing today.
The Affordable Care Act introduced many substantial changes
to health care, and these reforms will improve access to and
adequacy of coverage, allowing young people to stay on their
parents' insurance, expanding Medicaid, and not denying
coverage as a result of a preexisting condition. California
knows how to do things right. We have already had 59,000
enrollees in Covered California, so we are ahead of the nation
in terms of having our website working and people actually
going online and getting good plans, affordable plans, so we
are very proud of what we are doing in California.
The small businesses exchanges will offer opportunities for
small businesses to provide quality health insurance to their
employees. At the same time, self-insurance or self-funding
could be an option for small businesses to offer insurance
coverage at low prices or with greater flexibility. Though this
option is not for everyone, it could reduce the cost of
coverage for small businesses willing to take on that
challenge. While self-funding has traditionally been more
common among larger employers than small ones, there is growing
interest in this method of insurance. However, it is still
unclear just how many companies have already self-insured in
response to the law or are planning to do so.
With the opportunity to minimize risk but still offer
comprehensive coverage, small entities have expressed an
interest in learning more about self-insuring. Today's hearing
will allow us to learn more about how self-insurance works for
small firms and what factors they must consider before deciding
to move in this direction. We will also hear from witnesses
about the benefits and pitfalls of self-funding for employers
and what role health reform plays in these decisions. While
this option holds promise for small firms, experts have
indicated it could prevent much needed consumer protections
from applying to workers in small entities. For that reason, we
will also discuss how self-insurance could affect these
companies' hardworking employees. As we examine this very
important insurance alternative, we are looking for feedback to
see how it will impact small employers and how we can ensure a
broad range of insurance vehicles.
I thank all the witnesses for being here today, and I look
forward to your comments. Thank you, and I yield back.
Chairman COLLINS. Thank you.
To begin with, if Committee members do have an opening
statement, I ask that they be submitted for the record. And I
would like to take a moment to explain the timing lights that
are in front of you. You each have five minutes to deliver your
testimony. The light starts out as green. When you have one
minute remaining, the light turns yellow. And finally, at the
end of your five minutes it will turn red. I would ask that you
try as you can to adhere to that time limit.
Our first witness today is Michael Ferguson, president and
CEO of the Self-Insurance Institute of America. Welcome. He has
been with the association for more than 18 years, and in his
current role he provides executive management leadership as
well as serving as the federal lobbyist for the association.
Mr. Ferguson has significant expertise on self-insurance
matters related to group health plans, workers' compensation
programs, and captive insurance companies, and operates his own
blog which includes original reporting and commentary regarding
legislative or regulatory developments affecting the self-
insurance industry. Prior to joining SIIA, he was a corporate
communications specialist for Rockwell International at the
company's world headquarters. Mr. Ferguson earned his
bachelor's degree in political science from California State
University, Long Beach. Thank you for being here, Mr. Ferguson.
STATEMENTS OF MICHAEL W. FERGUSON, PRESIDENT AND CEO, SELF-
INSURANCE INSTITUTE OF AMERICA, INC.; ROBIN P. FRICK, COMBINED
BENEFITS ADMINISTRATORS, INC.; THOMAS FARIA, PRESIDENT,
SHEFFIELD PHARMACEUTICALS; LINDA J. BLUMBERG, SENIOR FELLOW,
THE URBAN INSTITUTE.
STATEMENT OF MICHAEL W. FERGUSON
Mr. FERGUSON. Well, good morning, Chairman Collins, Ranking
Member Hahn, members of the Committee. I am pleased to have an
invitation to come and join you this morning. I think this is a
very important and timely topic, and I am hoping to add some
value to the hearing today.
The couple areas that I am going to hit on in my oral
comments today is talk briefly about what self-insurance is and
how it differs from traditional insurance, who self-insures,
the ACA and self-insurance trends, the advantages and
disadvantages of self-insurance, and talk about the federal
regulation of self-insured plans. So the trick will be to do
that all within five minutes. So let me get right into it.
Real briefly here, if you are ready to talk about the
differential between self-insurance and fully-insured, if you
are an employer and you want to provide group coverage to your
employees, you really have one of two options. You can do a
traditional insurance plan where you pay a premium to an
insurance carrier, and that carrier in exchange for a premium
basically takes the risk and provides coverage to your
employees. The alternative is, as an employer, you can say,
well, instead of paying an insurance company to provide
coverage for my workforce, I am going to self-insure. In other
words, I am going to pay the claims out of my own operating
expenses or trust that I set up to pay the claims. So instead
of transferring that obligation to an insurance company, the
self-insured organization basically takes that obligation onto
itself and pays the claims as they are incurred. So that is the
differential between the fully-insured and the self-insured
environment.
Chairman Collins has already thrown out some statistics in
terms of the prevalence of self-insurance. Just to pick up on
that is of particular relevance to this Committee. About 16
percent of smaller businesses self-insure. That would be
defined within sort of three to 200 band; that is reported by
the Kaiser Family Foundation. But what I think would be
interesting for this Committee to also add, although this is
the purview of the Small Business Committee, self-insurance is
not simply a business strategy that the private sector
implements. Self-insurance is also very prevalent within many
labor plans--self-insured Taft-Hartley plans that self-insure
smaller groups as well as many public sector entities,
municipalities, many of which are self-insured.
Collectively, it is estimated about 100 million Americans
receive their health benefits through various forms of self-
insured plans. So the self-insurance market is kind of an
underreported business story but it is pretty significant and
it spans, again, both private sector, as well as the labor
plans, and a third area is municipalities. So it is a fairly
big marketplace, and so your hearing today is particularly
relevant.
So now that we have talked a little bit about what self-
insurance is, who self-insures, I want to go ahead and address
one of the questions that has sort of been raised by the
Committee. Obviously, we are here because in the context of the
Affordable Care Act, what does that mean for self-insurance? Is
that influencing companies to self-insure? If so, why that is.
Now, it is interesting. In the last year or two you hear a
lot of public comments that self-insurance is somehow a loop
hole to the ACA or this is a way to bypass the requirements
under the Affordable Care Act. And as my testimony is going to
demonstrate and hopefully we can get in some Q&A, I actually
think that is an incorrect observation of the marketplace and
what you actually see is companies that self-insure actually
subject themselves to more regulation collectively, not less
than if they were in a fully-insured environment. And we will
get into some of that.
So the question is, well, why are companies looking at
self-insurance if it is not for some regulatory motivation?
Well, I think the answer if you talk to companies is that
particularly in this environment where there is some
uncertainty in the marketplace, there is cost fluctuations that
have been at least indirectly influenced by the healthcare law,
what you find is companies that are migrating to self-
insurance. They want to take more control of their costs. They
do not want to be subject to an insurance company or a
government entity dictating to them what my costs are going to
be, what overages I am going to have. So by self-insuring, you
are able to take more control over your plan. To the extent
that you have decided that you want to provide benefits to your
workers, a self-insured arrangement puts you in the driver's
seat. You are the one that controls your plan going forward,
and certainly there is some work to go that we will talk about
in terms of managing the plan, but basically, it is control. It
is ownership of your plan which self-insurance provides. So
that, I think, would be our observation of what is driving
that.
There are several disadvantages to self-insurance. I would
say that not everybody is cut out for self-insurance. There is
a lot of financial and regulatory requirements that you have to
adhere to, which is detailed in my testimony, but there are
also several advantages being self-insured. You can better
manage your plan, cost savings, and a variety of other things
that make self-insurance an advantage. Again, not the right
choice for all organizations, but it is a choice for some.
So with that I will go ahead and--time is short here. I
will conclude my testimony, and look forward to answering
questions from the Committee as they arise. Thank you.
Chairman COLLINS. Yeah, no, thank you. And we will try to
cover a lot of these issues. The intent today is really to be
informative to small businesses. They are in what we call the
traditional sign-up period right about now trying to figure out
what they are going to do the first of the year.
Our next witness is Robin Frick, who is responsible for key
account management, compliance, and corporate operations with
Combined Benefits Administrators, an enrollment firm and third-
party administrator, or TPA, that performs insurance carrier
billing, claims advocacy, and benefits management located in
Madisonville, Louisiana. Robin is testifying on behalf of the
National Association of Health Underwriters. She has been an
active member of the organization for several years and has
served on the boards of both the local New Orleans chapter and
the Louisiana state chapter in several different positions. In
2011, she was accepted onto the National AHU Legislative
Council, which provides legislative advice, communication, and
policy positions to the membership, Congress, and the
administration. Robin received her associate's degree from
Emory University in Atlanta, her bachelor's degree from
Louisiana State University, and is certified in transplant
contract management.
Thank you for being here. You can begin your testimony.
STATEMENT OF ROBIN P. FRICK
Ms. FRICK. Good morning, and thank you.
My name is Robin Frick, and I am licensed professional
health insurance agent from Slidell, Louisiana. I would like to
thank the Committee for inviting me here today to talk about
self-funding health benefit plans and whether it is an
appropriate option for smaller employers. I have been in the
insurance industry since 1999, and I have spent my career
helping businesses design and implement self-funded benefit
plans for their employees. I have also been a part of my
professional association, NAHU, for 14 years, and I am speaking
on behalf of all of our members who work on a daily basis to
help millions of individuals and employers with their health
coverage needs.
Regarding today's discussion of self-insurance, health
benefits, and the small employer, I will be frank that the
decision to self-fund coverage should not be taken lightly. It
is a multi-year commitment in which the employer assumes the
financial risk for providing medical insurance to its employees
and their families rather than paying an insurer to bear the
risk. The appropriateness of a self-funding arrangement is not
only determined by the size of the employer but also the
financial stability of the employer, his or her risk tolerance,
and the ability to administer a compliant plan. There is an
increased interest by smaller employers in self-funding since
the passage of healthcare reform, but this is a transient time,
and again at the state level when there are market reforms. The
outcome of small employer self-funding though as a result of
market reform measures is still rare.
Self-funding and stop-loss is not a new phenomenon. It has
been around long since the days of cargo ships sailing to the
New World. This new awareness of self-funding and stop-loss
marketplace stems from the employer anxiety about changes to
the new healthcare law that may bring to their employee benefit
offerings such as the new national health insurance tax, the
``Cadillac tax,'' and the changes to premium rate calculations.
Self-funding a health plan provides a means to structure
benefits to meet the specific needs of an employer but does not
allow employers to escape the impact of healthcare reform.
Most of the reform laws market protections apply to
employer groups of all sizes regardless of how they are
financed. For example, a safety compliance client with 75
employees in good health and stable age-gender demographic, is
interested in alternative funding such as self-funding with
reinsurance in lieu of paying an increase over increase each
year to fully-insure an insurance policy without experiencing
the large ongoing claims that would normally directly impact
the rates. He is experiencing a significant increase each year
that is not indicative of his employee population.
On the other hand, an electrical contractor with 50
employees that has ongoing health, both medical and
prescription drug claims each year, would not be able to
financially support a benefit plan in a self-funded
arrangement. His company may be in a healthy financial position
now, but if we extrapolate the expected risk two, three, and
five years out, he will very much risk losing what he has
worked so hard to grow. He would pass on the assumption of
risk.
I have experienced quite the opposite, too. A bank client
of 170 employees is considering the transition to fully-insured
from self-funding with reinsurance as they can no longer
sustain the adverse claims. The impact over the last three
years has significantly depleted any reserves previously
realized and gained through their self-funded arrangement, and
the concern is that they are behind the 8-ball, so to speak,
and they cannot get ahead. They are tired of assuming that all
of the financial risk, the administrative responsibilities, and
the compliance liabilities. The growing interest in alternative
funding mechanisms has led some self-funded marketplace
innovation with the development of hybrid level funding plans
which can ease the transition from fully-insured to self-
funding, and we anticipate further growth and innovation within
this regard.
From a compliance and regulatory perspective, although
self-funded plans fall outside of state-level insurance
regulation, though they have always been subject to ERISA,
stop-loss policies are actively regulated by state insurance
departments and are held legally accountable for marketplace
conduct; likewise for the licensed insurance professionals
advising in those arenas.
In short, as healthcare reform has moved forward, employers
are looking to gain greater control over their employee benefit
options and funding mechanisms. I truly appreciate the
opportunity to provide testimony to your Committee today. I
consider it a huge honor to be here and a privilege to be able
to inform you, our elected representatives, how the self-funded
health insurance marketplace works for employers, both large
and small.
Thank you.
Chairman COLLINS. Thank you very much.
Up next is Thomas Faria. Is that correct? Faria. President
and CEO of Sheffield Pharmaceuticals in New London,
Connecticut. He has been president and CEO of Sheffield, one of
the nation's fastest-growing contract manufacturers of over-
the-counter pharmaceutical creams, ointments, and toothpastes
since 2002. In this role, he is responsible for overseeing all
areas of operation of 160 employees, $30 million pharmaceutical
products manufacturing company. The responsibility includes the
absolute authority on all major decisions that affect the
company and he acts as the public voice in all legal, public,
and customer relations. Mr. Faria received his B.S. in
industrial and operations engineering from the University of
Michigan and his MBA from Bryant University in Smithfield,
Rhode Island. We appreciate your participation, Mr. Faria, and
please begin your testimony.
STATEMENT OF THOMAS FARIA
Mr. FARIA. First of all, I would like to thank you for the
opportunity to speak to you all. I think this is truly a very
important topic to talk about, especially for small businesses
because as you review information and some of the topics that
are most important to small businesses, what usually rises to
the top is the ever-increasing costs and the unknown costs of
the future of providing health care for their employees.
Our experience that got us and Sheffield to try self-
insurance, it really started in 2007. Up until that point,
every year we would go through and review our health care costs
and quote them, and we would expect a moderate increase of 5 to
10 percent on our insurance premiums. In 2007, we had a few
unfortunate events with our employees. They were using--that
caused our healthcare costs to go up. In response to that, our
fully-insured provider increased our rates 25 percent. The next
year, they were looking to increase our rates 39 percent, and
when we looked around for any comparable products from their
competitors, they were even higher. So at that point we took a
look at and really did a leap of faith knowing that our staff
were both fairly young and fairly healthy, we went for the
opportunity to self-insure ourselves, and we have been doing
that since 2009. What I can say is that so far that has been a
great decision. We have saved over that four-year period
roughly $400,000 compared to what we would have paid for our
insurance premiums. And that is about a 19 percent savings.
What we did with that savings, really, that allowed us to keep
our benefits the same. We have a gold quality insurance program
and we have kept that affordable for our employees.
When I look at some of the benefits that self-insurance can
help with small business, first, obviously, there is an
opportunity to save costs. Secondly, whenever you give an
entrepreneur or business the opportunity and the information
that is provided, you give them an opportunity to get
responsible for those costs and accountable for those costs.
And so self-insurance allows for some transparency on the
healthcare costs that these businesses are incurring. This
allows them to cater, and self-insurance allows for the
flexibility to change their plans pretty much on the fly to
adjust their plans for efficiency and also in some cases to
reduce costs. What self-insurance also does, it allows and
gives great incentive for small businesses to invest now in
education and incentives that help improve overall efficiency
of their programs. As a businessman, I can say that such
investments usually you would not go and invest in such
incentives when the benefit may turn out to be your fully-
insured provider. Here we are looking at mitigating future
costs by providing incentives for people to first go out and
get physicals yearly, and also we provide incentives for them
to lead healthy lives. That means checking your cholesterol,
blood pressure, not smoking, keeping a healthy weight. And it
is truly these self-insurance plans that allow us the
flexibility to really kind of cater our programs to the needs
that we see in our employees and also that we see coming up
through the data that we are reviewing.
I thank you and look forward to contributing in any way. I
look forward to your questions. Thank you.
Chairman COLLINS. Thank you very much.
I would like to now yield to Ranking Member Hahn for
introduction of our next witness.
Ms. HAHN. Thank you, Mr. Chairman.
It is my pleasure to introduce Dr. Linda Blumberg. Dr.
Blumberg is a senior fellow at the Urban Institute's Health
Policy Center. Her recent work includes a variety of projects
related to the analysis of health reform and state
implementation of the Affordable Care Act. Dr. Blum berg serves
as a senior advisor for the institute's Health Insurance Policy
Simulation Model, and is also a member of the Health Affairs
Editorial Board.
Welcome, Dr. Blumberg.
STATEMENT OF LINDA J. BLUMBERG
Ms. BLUMBERG. Thank you very much.
Mr. Chairman, Ranking Member Hahn, and members of the
Committee, I appreciate the opportunity to testify before you
today. The views that I express are my own and should not be
attributed to the Urban Institute or its sponsors. My testimony
draws on my own and my colleagues' analysis of the ACA, some of
which rely on a 10-state case study effort of ACA
implementation which the Urban Institute continues, along with
our colleagues at the Georgetown University for Health
Insurance Reforms, and some of which relies on the Urban
Institute's Health Insurance Policy Simulation Model, HIPSM, a
micro-simulation model that estimates individual and employer
responses to specific provisions of the law.
Our analyses lead to the following main conclusions.
Changes to small group insurance under the ACA intended to
broaden sharing of healthcare risk across firms. An increased
premium stability and access to insurance do not in general
apply to self-insuring firms regardless of size, nor do they
apply to private stop-loss policies, the product that makes it
feasible for small firms to self-insure. As a result, small,
young, and healthy firms will have increased incentives to
self-insure once the ACA's reforms are fully in place, possibly
trying to move between self-insurance and healthy years and
fully-insured products and less healthy ones.
However, stop-loss policies combined with the self-
insurance approach itself carry substantial financial and legal
risks for small employers. As such, sales of stop-loss to small
firms are relatively uncommon today. In fact, many sources in
our case study were from the insurance and producer communities
felt it was irresponsible to market stop-loss policies to small
firms. However, we are seeing increasing marketing activity by
reinsurers since passage of the ACA, including the emergence of
bundled products which combined stop-loss coverage with
administrative services. Many traditional insurers report that
they do not want to get into this business, but if they see
their traditional products being undermined they will have to
participate as well.
While some states, for example, Colorado and Rhode Island
in 2013, continue to pass laws due to the risks involved. In
the vast majority of states, stop-loss coverage is not
regulated like insurance, and as such, the policies can be
denied to small firms outright due to their health status, are
not required to cover specific benefits, are not guaranteed
renewable, and can charge premiums based upon the claims
experience of a particular firm with reunderwriting occurring
frequently.
Reinsurers can also include lasers that exclude coverage
for the expenses of a group's highest cost or highest risk
members. Stop-loss policies may not pay claims until the end of
the first quarter after the plan year ends, leaving small
financially vulnerable firms to pay all incurred claims
upfront. Small employers may be wholly financially responsible
for claims incurred in a plan year but filed after the end of
that year once a reinsurance policy ends, leaving the employer
exposed for large dollar amounts not anticipated.
Significant increases in self-insurance also pose
substantial risks to those small firms wishing to remain in the
fully-insured market, an issue that has led some states to
prohibit the sale of stop-loss to small firms. And due to these
risks, in 2012, an actuarial subgroup of the NAIC recommended
changes to their model law which would set the attachment point
or deductible for stop-loss coverage at a minimum of $60,000
per insured individual. Our micro-simulation analysis finds
that their suggested parameters would, in fact, dissuade the
vast majority of small firms from self-insuring. Under this
approach, average premiums in the fully-insured small group
market would be lower than under a scenario with looser stop-
loss regulations or none at all. If these recommendations were
implemented in a uniform manner nationally, the fully-insured
small group market would be roughly one and a half times as
large and the average fully-insured small group premium would
be 20 to 25 percent lower than if reinsurance effectively acts
as unregulated insurance.
To conclude, self-insurance and unregulated stop-loss
coverage carries substantial risks for small employers who are
often already financially vulnerable and frequently ill-
equipped to take on the additional financial and legal risks
associated with it. It also carries risks of undermining the
ability of other small firms to purchase affordable coverage
for their workers in the fully-insured market. A majority of
states do not regulate the sale of stop-loss insurance today,
and many of those that do regulate it require minimum
attachment points well below recent actuarial recommendations.
In addition, we were unable to identify even a single state
that currently monitors the sales of these policies to small
firms, and only one that has plans to begin doing so. The
Federal government could intervene, prohibiting the sale of
stop-loss insurance to small employers, requiring its sale to
small employers be regulated by small group rules, or setting
minimum attachment points consistent with the new
recommendations. At a very minimum, the Federal government can
develop and implement an effective plan for closely monitoring
increases in small firm self-insurance nationally and by state.
Given the magnitude of other tasks and time pressures, states
are not inclined to do so on their own, which means that in the
absence of a concerted federal effort, states will be
unprepared to intervene as warning signs increase the time at
which major market disruptions could more easily be avoided.
I am happy to answer any questions that you might have.
Chairman COLLINS. Thank you to all the witnesses. I think
we can have some very interesting questions. Ms. Hahn and I
tend to run our hearings a little different than most. Instead
of going first, which you find with many chairmen and ranking
members, we like to go last. Our fellow members have busy
schedules and so I will defer, as she will, to our fellow
members here and then we will bring up the rear.
So with that I would like to start with the Congressman
from Colorado, Mr. Coffman, if you would like to ask some
questions.
Mr. COFFMAN. Thank you, Mr. Chairman. I think this is--
certainly having been a former small business owner, that this
is a very important hearing given all the changes to health
insurance in America right now under the Affordable Care Act,
better known as Obamacare. And I would like to ask each of the
panelists to, if you could, answer relatively quickly, but to
basically say under the pressures of the Affordable Care Act,
do you think that self-insurance will grow under--in this new
environment as a mechanism for small businesses to afford
health insurance for their employees?
Start with you, Mr. Ferguson.
Mr. FERGUSON. Sure. Thank you, Congressman, for the
question.
To answer that, I think our view would be that we would
predict a continued growth in the marketplace, although that
growth will probably be somewhat moderate just because for
reasons that some of us have talked about already, stipulated
self-insurance is not the best choice for all companies,
particularly small employers. For some it is a great choice.
But what we are seeing in the marketplace, there is a lot of
companies that are looking more at self-insurance, and as part
of that process to evaluate whether that choice is right for
them, many of them as they sort of go through the process
realize, well, this may not be the right choice for us so they
do not go forward with that. But for companies that they have
the financial viability, they have the sophistication to pursue
this funding method, it is a good choice. So for that reason,
since there is more interest generally, I think you are going
to see a continued growth. But again, I do not see it as a
wholesale migration. I think you are just going to see more
companies gradually shift into the self-insurance marketplace.
Mr. COFFMAN. Thank you.
Ms. Frick.
Ms. FRICK. I agree with Mr. Ferguson. I do not know that it
would actually explode as far as all of a sudden vast rush of
people to come in to self-fund. The growing interest does not
necessarily equate to a growing number of new self-insurance or
stop-loss policies. Just as Mr. Ferguson indicated, you will
have more people that are looking into it, doing the math, and
as insurance professionals, that is our job, to help them
determine the risks and advantages of every kind of funding
mechanism available to them. So the increased interest is in
something that is now newer to them than there has been before
or rather may be available to them than it has been before. You
still see reinsurance carriers that would provide the stop-loss
behind it still a little hesitant to come down into the market
of under 100 or under 50 just because that market space is
typically not very self-funded friendly from a risk standpoint.
Mr. COFFMAN. Mr. Faria.
Mr. FARIA. I guess my answer would be I hope so. But I
belong to an organization called the Young Presidents
Organization, and in that organization we have had numerous
talks about self-insurance, and actually, literally, one of the
topics was about how to respond to Obamacare, and they were
actually pointing towards self-insurance as a way to
potentially mitigate the unknown costs that Obamacare may cause
in terms of increased fully-insured premiums. I think right
now, especially right now, when you are looking at a situation
where the fully-insured providers have an unknown, certainly
with this website problem and other issues, and of course, the
issue here with people losing their coverage, they are not
quite sure what the premiums are going to be going forward. And
I think right now self-insurance might be a great option for
some people to mitigate that potential liability of increased
fully-insured plan premiums.
Mr. COFFMAN. Thank you.
Dr. Blumberg.
Ms. BLUMBERG. Because under the Affordable Care Act price
discrimination based on health status of a small group is
prohibited nationally for the first time, the self-insurance
becomes a more attractive option for firms that have healthier
than average risks in their firm. And so we do expect there to
be an increase in self-insurance as a consequence barring other
intervention, either federally or at the state level.
I will mention to you that in terms of the uncertainty that
one of the witnesses was mentioning, the issues with the
website are very strongly unrelated to the vast majority of the
small group insurance market which will continue to, in the
fully-insured market, buy through brokers and agents as they
have in the past with some percentage going through the
exchange. But the markets are merged between the exchange and
the non-exchange small group market. And so anything that
creates a segmentation of risk between the self-insuring firms
and the fully-insured firms affects the entire small group
market.
Mr. COFFMAN. Thank you, Mr. Chairman. I yield back.
Chairman COLLINS. Thank you.
At this point we would like to yield five minutes to the
Congressman from Oregon, Mr. Schrader.
Mr. SCHRADER. Thank you, Mr. Chairman. And I appreciate the
tone of the hearing if I may say so. It is a great idea, great
topic. I am curious myself to see how this may or may not work
out for businessmen and women around the country. So I really
appreciate it.
First, I guess to Mr. Ferguson, if you could elaborate why
you do not think this is a loophole in the ACA, and then you
first comment on how this stop-loss works. It seems to me small
business to me is something under 50 employees, and you are one
catastrophic event away from losing your business if you do not
have big cash reserves. How does that stop-loss really work? I
would ask Ms. Frick the same question in a minute. Why is it
not a loophole and why is this remotely possible for small
business?
Mr. FERGUSON. Sure. I am glad you asked that question, so
let us explore actually both of those variations.
The issue about the loophole is that there is concern or
express stating that somehow self-insured plans are these
unregulated entities that are out there and are sort of
operating in kind of the Wild West. But, the fact is if you put
a finer point in it, what we are really looking at in this
discussion is what is the trend. Employers that are moving to
self-insurance post-ACA. And by definition, those plans would
be non-grandfathered self-insured plans. We have got two
varieties--the grandfather and the non-grandfathered self-
insured plans. So all of those plans that are moving to self-
insurance would be non-grandfathered plans, and as such, they
are subject to almost all of the regulations under the ACA.
There are a few. There are about three or four that they are
not subject to, and there are particular reasons why they are
not applicable to self-insurance. Because essentially, self-
insurance plans are the equivalent of nonprofit health plans.
They are not in the health insurance business. They are widget
manufacturers. And so in addition to that, not only are they
regulated by the ACA, they are also regulated by ERISA. Also,
HIPAA, COBRA. There are all these other federal laws that
apply. So if you are going self-insured, you are actually
subjecting yourself to more regulation, not less, if you are
looking from a business owner standpoint.
Now, to your question about stop-loss insurance,
distinction between stop-loss insurance and health insurance.
Stop-loss insurance is essentially a liability-type of
insurance product between the carrier and the employer. A stop-
loss insurance policy does not cover individuals, it does not
pay claims, and so there is a distinction that you need to keep
in mind whereby you have got the plan, the self-funded plan,
and you have the participants within that plan. And those
participants are in the plan, they get coverage under the plan,
no matter what the stop-loss insurance arrangements are. The
stop-loss arrangement is simply a reimbursement mechanism
between the employer and the carrier. So the fact, any of the
arrangements of the stop-loss does not affect the plan
participants, whether there is a laser, which means that the
employer retains liability for one or more people under the
plan not subject to liability. It is simply a reimbursement
mechanism. So that is a financial tool that the employer uses
and really has nothing to do with the healthcare, per se,
delivery for the plan participants. I hope that addressed your
question.
Mr. SCHRADER. And then, Ms. Frick, if you will chime in. So
what does it cost? I mean, if the stop-loss companies are
willing to assume that ultimate risk, you know, I have got only
so much cash, my employee develops cancer, has this
catastrophic crippling injury, you know, I do not have enough
money to pay that, that is the reason I got you as a stop-loss
insurer or backstop. What does it cost me to have you do that
and what caveats do stop-loss companies put in to make sure
they are not on the hook?
Ms. FRICK. Very good question.
With a stop-loss arrangement, self-funding, either you are
going to assume everything without the backstop or reinsurance,
or you purchase reinsurance just as you said to cover your more
catastrophic risk. So rates are determined just as you would in
a fully-insured market from the reinsurance but without the
medical piece. The medical piece is added in after when you are
looking at your specific medical claims experience and how you
can turn that forward for your expected, and then the maximum
liability over that next plan year.
So in the reinsurance piece, you are still taking into
consideration the size of the group, the demographics, the area
factors, where it is, and just the cost of what you are needing
to cover. And then, how large of a deductible do you want on
each bellybutton that is covered on the plan. And then if you
are in that size market of say 1,000 or less, you are going to
want the extra aggregate protection that protects collectively
all of the bellybuttons in the plan. So you have one on each
and one as the whole.
So in that perspective there is always--you have to take
all of that in to develop some kind of fixed premium cost that
is a known factor over the 12 months. Your claims, you do trend
out and expect where they will be. It is safe to put a corridor
so you have a maximum liability to which you maximum would pay
out, say about 125 percent of where you expect your claims will
fall, but the reinsurance provides, if I set a deductible on
each bellybutton as $10,000, then after that $10,000, my plan
is reimbursed by the reinsurance carrier for anything over that
expectation. So there is a cost factor. The reinsurance carrier
is looking at everything, looking at the claims experience,
what has happened before.
Now, what is interesting is if you are moving in typically
that small group market under 100, you do not get the claims
experience, or if you do, it is very aggregated. It is not very
specific as we have known in the past. So now it is not a
guessing game but you are looking at a whole market or a pool
in and of itself. So now you are having to determine across a
broad spectrum what do I believe for this area, for this type
of industry, for these kinds of workers, where should we place
the deductible level? What do we expect out of them? An oil
rigger is going to have a much higher risk factor than someone
who sits behind a desk every day. So those are all taken into
consideration. But the reinsurance does provide sleep
insurance. I know at night that my total exposure is X. I know
if I have an aggregate coverage that my total as a plan is X
and there are reimbursables. As was noted earlier, just totally
crippling someone, it does just help to have that something in
the background.
Mr. SCHRADER. Sure. Thank you very much.
I yield back. Very helpful.
Chairman COLLINS. Thank you.
At this point we would like to yield five minutes to the
Congressman from Kansas, Mr. Huelskamp.
Mr. HUELSKAMP. Thank you, Mr. Chairman. I appreciate the
opportunity to visit here and learn much more about this topic.
My first question would be for Ms. Frick. Thank you for being
here.
How many years of background do you have in this industry
and your education that qualifies you for your current
position?
Ms. FRICK. Sure. So I have been in the industry ever since
I graduated from college basically. So a little over 14 years
ago.
Mr. HUELSKAMP. Two years ago?
Ms. FRICK. Yeah, about five. Thanks.
And I have been active--just from the perspective, I
started--when I started my career I started out with an
insurance consulting firm and just started asking a lot of
questions and moved from the small group space and fully-
insured into our client-size, the middle market space, starting
to get a mix of self-funding, and then to a larger self-funded
market space. I was curious. I asked a lot of questions. I like
to learn, and if I need to educate you about it, I need to know
what I am talking about. I worked with a managed care company
for a year so I had a very interesting and in-depth look on the
inside from how an HMO self-functions. I had a very good
relationship with the underwriting actuarial departments, so I
really understand how rates are calculated. What is the value
of a co-pay? What is a value of the deductible and the out-of-
pocket. And from then, back on the consulting side.
Mr. HUELSKAMP. Last week in a hearing, for instance, the
HHS secretary did admit a felon could serve as a navigator
potentially. How comfortable would you be to call up a
navigator or visit with them in order to make your healthcare
decisions?
Ms. FRICK. Honestly?
Mr. HUELSKAMP. Yes.
Ms. FRICK. Not comfortable at all, unless I knew that they
were a licensed, regulated entity that had to conform to
continuing education as we have to or a required number of
hours every two years. And we are subject to market conduct and
are held legally accountable for what we do, what we say. We
carry E&O insurance. We have, you know, for any claim against
us. I want to know that the claim that I am talking to on the
other line knows exactly what I am talking about or asking the
questions for. I appreciate if someone does not know and is
honest and says I do not have that answer but I will find out
for you, but I would much rather if I am making a big
healthcare decision, just as an employer or as an individual,
this is your number two for an employer payroll. This is the
number two list on your accounting statement. You have got to
know who you are talking to and who you are dealing with and
they are going to be able to be objective in helping you
determine what is best for you.
Mr. HUELSKAMP. Well, thank you. I share that concern as
well and hear that from constituents worried about instead of
the agent they usually rely on or the folks that help manage
their account at their employer, just worried about a
navigator, untrained, perhaps for a month, not even that. No
insurance. I had not even thought about that. I mean, that is
just a basic requirement of the agents.
The second question would be for Mr. Ferguson. I am looking
at a story from my district in Kansas, which is about the
middle of the country, and a company by the name of Vortex
Corporation. They work really hard. Their insurance renewal
date just happened to be July 1st, and they worked really hard
and made that requirement, did everything they needed to do,
and then shortly thereafter the administration announced, you
know what? We are just going to ignore the portion of Obamacare
that says the business mandate. We are going to put that off.
Other companies, were they in this situation? And what has been
the impact of delaying that? I have heard various reports of
what that has meant for businesses. If you could provide some
light on that, Mr. Ferguson.
Mr. FERGUSON. Well, I assume you are referencing companies
that currently maintain a plan or determine whether to continue
that plan through 2014. Is that the direction of the question?
Mr. HUELSKAMP. Yes. In this case, the renewal is July 1st.
Mr. FERGUSON. Right.
Mr. HUELSKAMP. And they worked everything they could in the
law and all of a sudden it was suspended for a year.
Mr. FERGUSON. Well, what I can simply tell you is
anecdotal, so disclaimer there, and the companies that I have
spoken with is that all of the companies that provide or are
thinking of providing a group health plan, they have run the
numbers so to speak. They have done the analysis in terms of
whether they want to start a plan or maintain a plan, and they
have probably reached some initial conclusions as to whether
they want to play or pay. But most of those companies are
taking a wait-and-see attitude, particularly the ones that are
thinking about that they might drop the coverage and go ahead
and pay because they are kind of waiting to see what exactly--
how is the experience in the exchanges going to be. For
instance, for companies that would be considering potentially
dropping their coverage, one of the things that they are
looking at is, okay, are the exchanges, are they going to be
functional? Are they going to be effective? Because that is
going to impact the decision of the employer. If they are
thinking, well, if my assumption is that I could drop my
coverage and there is a viable option for my employees and it
is easy and you can get your affordable coverage as the law
anticipated through the exchanges. That might influence my
decision to go ahead and drop my plan.
On the other hand, if there is uncertainty in the
marketplace and the exchanges are not delivering on that
promise, then that would sort of push them back to maintaining
the plans. I think if you talk to most companies that are self-
insured that have run successful self-insured programs, their
preference is to keep their plans just because for no other
reason it is a value to them. It is a value to retain and
attract talent. So for those successful plans, they are
inclined to keep them. But they have all run the numbers. They
have all had their initial analysis. Most, if not all, will not
publicly state what their intentions are but in some backroom
they have a spreadsheet that shows all the different
variations. And again, as I said, a lot of them are just sort
of waiting to see how--obviously, there is a lot of uncertainty
that is going on in the marketplace right now so they are kind
of waiting to see how this all plays out.
Mr. HUELSKAMP. All right. Thank you, Mr. Chairman.
Chairman COLLINS. Thank you.
At this point we would like to yield five minutes to the
Congressman from Missouri, Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
Just a couple quick questions here. Mr. Faria, you have a
plan in place and have been working with it for how long now?
Mr. FARIA. We have been working with it for over four
years.
Mr. LUETKEMEYER. Four years. Okay. How has it been accepted
by the employees? Do they like it? Do they have concerns with
it? Mad at it? In love with it? Ready to go for some more? What
is the story? How do they accept it?
Mr. FARIA. Well, I think in a lot of ways it is seamless.
We are just replacing kind of the backend of the insurance. So
for some businesses, they can choose to keep everything the
same. You might not even have to tell the employees.
Mr. LUETKEMEYER. Does it help retention then by having, in
your situation, a rather seamless transition to this new plan?
I assume it does not hurt retention.
Mr. FARIA. Right. I mean, I think as I stated in my
testimony, the savings that we have gotten from self-insurance
has allowed us to keep a high standard plan. We consider our
plan, it qualifies to be a gold standard plan. We have also
been able to keep that relatively affordable for our employees.
And so for us we are using our self-insurance as a benefit for
our employees to help us keep and retain our employees.
Mr. LUETKEMEYER. Okay. Do you fund the program entirely or
do you have a reinsurance stop-loss behind your plan?
Mr. FARIA. Absolutely. We have a stop-loss.
Mr. LUETKEMEYER. Okay. Very good.
Ms. Frick, you deal with lots of plans. I know that the
bigger you get probably the more functional this becomes, the
more of an option it becomes. How small does it get down to
where it is really not an option or not something that needs to
be considered or you need to just go ahead and let the
insurance company take the risk? What has your experience been?
Ms. FRICK. Obviously, the larger you are the more credible
your claims experience is, which that being, it is more
indicative of where you will be in the future. There is the
one-in-five rule where one out of every five years you will
probably tank, you will have a bad one, but for the most part
you are going to run pretty well. The larger you get, it
becomes a very predictable number. As you become smaller, your
claims experience is less--there is more volatility just from
the perspective that it is less predictable. When you are
around about 100, 200 employees, you need to gain the time to
have a plan in place to really see where your trend is going
because just as was mentioned earlier, you can have the one
that just blows the whole plan out of place but that one person
in a smaller group is more damaging to that group than the one
person in a larger group.
Mr. LUETKEMEYER. What has your experience been with
reinsurance? Do most companies have a stop-loss behind them or
are there companies out there that just take the full risk and
just let it fly?
Ms. FRICK. Most will have reinsurance except when you find
a very large employer with tens and thousands of employees that
can really financially put it behind them.
Mr. LUETKEMEYER. Do those companies that participate in
this, is it more based on the revenue of the company so they
have more cash flow or is to more based on the number of
employees?
Ms. FRICK. More on the financial perspective. What can I
assume? What is my risk tolerance?
Mr. LUETKEMEYER. And expense to put this money into--my
next question is do most of them use a trust fund to put this
into or do most of them just write a check out of their account
whenever, you know, they just have a separate bank account and
then just write checks out of it whenever something happens?
Ms. FRICK. Sort of that. Both. They have a claims fund. So
you set your employees--employees still have a premium they are
paying, and you set that premium based on the claims and the
administrative costs, just as you are in a fully-insured plan.
You pay $100 a month in premium. That is encompassing the
claims that have to be paid, the administrative fees that have
to be paid all in one lump dollar. You do the same thing on the
self-funded side. So from an employee's perspective, I do not
know the difference. I do not know the funding mechanism behind
the plan. So the claims dollars that you as Mr. Employer are
withholding from my payroll, for example, are put into that
separate fund. The administrator who is physically paying the
claims since the request to the employers in the past however
often that is--two weeks, one month. You have had these claims.
Please send the check for this money.
Mr. LUETKEMEYER. Okay. I am running out of time here. If
one of you, probably Mr. Ferguson, I would imagine, could give
me just sort of a thumbnail sketch of how this fits into the
McCarran-Ferguson act. You know, basically states need to be in
charge of health care, yet this comes under sort of an ERISA
situation. So can you give us a thumbnail sketch on what
applies, what does not apply, how this all fits together?
Mr. FERGUSON. Sure. As you mentioned, the Employee
Retirement Income Security Act is the controlling main federal
regulation that governs self-insured health plans. So as a
self-insured health plan, you are regulated under federal law
by ERISA principally but then other laws also apply, including
as I mentioned, many of the applications and provisions under
the Affordable Care Act. The McCarran-Ferguson dictates that
the business of insurance is regulated at the states. So we
talked a little bit about stop-loss insurance carriers. The
stop-loss insurance carriers are state-regulated entities. So
you have the plan that is regulated by the Federal government,
stop-loss insurance carriers are regulated at the state level.
Does that answers your question?
Mr. LUETKEMEYER. Yeah. That just adds to confusion. Thank
you very much.
Mr. Chairman, I appreciate your time.
Chairman COLLINS. Thank you.
Well, Ms. Hahn and I will now kind of jump in and try to
connect some of the pieces. I guess, Mr. Ferguson, let me start
with you because you are the Self-Insurance Institute. Just to
be clear, an employee designs a self-insured plan. One thing
that is a big thing, they do not, as I understand it, have to
meet the eight or 10 minimum requirements of the ACA. If they
choose to have a self-insured plan, for instance, that does not
have a free gym membership or does not have maternity care or
contraceptive coverage, they are allowed to do that. That is
one of the three or four exceptions. Is that correct?
Mr. FERGUSON. You are correct. They are exempt from the
essential health benefits rule. But there is a longer answer.
They are subject to the minimum value requirement that the plan
has to provide minimum value for them to meet their employer
mandate requirement as well as their plan participants to meet
the individual mandate requirements. So it is sort of an
indirect sort of regulation in terms of the composition of the
quality of the plan.
Chairman COLLINS. So, for instance, if a company had a
religious objection to providing contraceptive coverage, they
do not have to do it in a self-insured plan. But the point you
are making is--I call it the 60 percent rule--their plan
actuarial still needs to cover 60 percent of the expected costs
that would be incurred. Is that what you are talking about?
Mr. FERGUSON. That is correct.
Chairman COLLINS. Right. So overall it meets the standards
but not ``one size fits all.'' Each company can design the plan
they want, which I would like to think is what America should
be all about.
Now, today we have community-rated plans which a lot of
small businesses are in. We have experience-rated plans, which
obviously is what Mr. Faria had as a fairly large small
company, 160 employees. He was experience-rated each year, and
if somehow he had some unhealthy situations, his rates could go
up, up, up. If you are that 25, 30, 40 employee company, you
are probably in a community-rated plan. And then you have self-
insured. And maybe now you throw the exchanges in. But is it
fair to say then experience-rated, community-rated, self-
insured are maybe the three big things out there?
Mr. FERGUSON. I think that is one way to describe it.
Chairman COLLINS. And Ms. Frick, if a company at some size,
like Mr. Faria, he probably would not qualify for a community-
rated plan. Is that correct? They are only going to take him on
an experience rated plan, so each and every year they are going
to say what happened this year, look back a couple of years,
and then design the premium schedule which he could be
fortunate it goes up 1 or 2 percent or he could have a bad year
and have it go up 30?
Ms. FRICK. Typically, the under 100 group size is where you
are put into that community-rated pool. But when you get over
the 100 you start jumping out of the pool.
Chairman COLLINS. All right. So that brings my next
question. As companies, and actually, I am looking at this in a
couple of my businesses, on the stop-loss, I do not think any
small business owner would ever enter into this without stop-
loss. So, and I am sure this may vary state-by-state, location-
by-location, but is there a point at which somebody wants self-
insurance but they cannot get stop-loss? What would that
employee, you know, like if you had 25 employees, could it be
if I hired you to go find me self-insurance you might not be
able to get a competitive stop-loss quote? But if I had 80 or
100 I could? And is there any generalities there?
Ms. FRICK. You are right. I mean, that is a fair statement.
Because the reinsurance carrier is still looking at they are
assuming some risk at some point in time. So how much is it
going to cost them on that small group when there is not going
to be a lot of premium per se to come out.
Chairman COLLINS. Is there a number, like, one thing we
hoped to get out of the hearing is--and I am going to talk to
FOX News today, is maybe some generalities. Is it 25? Is it 50
employees? Is it 75? Because there may be--there are a lot of
people looking at options but we do not want to mislead someone
that has got 10 employees who think they can do a self-insured
plan and actually get a stop-loss.
Mr. FERGUSON. That is a great question. It is an obvious
question. And the answer is a little less precise. And the
reason for that is as we talked about--now, self-insurance, the
larger you get on the continuum, you are more likely to be a
viable candidate for self-insurance. So by converse, the
smaller you are, the less likely. But you cannot just look
simply at the employee size. As we talked about a little bit
earlier, to a large extent is a balance sheet. It is a
financial decision. And so you may have--let us just take an
example--you may have a law firm that has 30 or 40 attorneys
that is cash rich, that has a fairly stable workforce that has
the financial wherewithal to self-insure. And they may be a
great candidate to self-insure. Look at the opposite way. You
may have a much larger employer that is really having
challenging--does not have much cash reserves. They are a
larger employer. They may not be viable for self-insurance
because of their financial condition. So it is tough to sort of
pin down an exact number. It really is, again, the smaller you
get on the spectrum it is certainly more difficult. But to the
extent that again you are strong financially--and the other
component, too, is, I make the point, is the successful self-
insured companies are largely the ones where the principals,
the owners, the executives of those companies decide they want
to take ownership of the plan. They want to roll up their
sleeves and make the plan work. Because one of the advantages
of self-insurance is you have the ability to really customize
your plan and really make it work well, but it takes some
effort. It takes some time. Your executives are going to have
to reserve some time. They are going to have to meet with their
business advisors. They are going to have to evaluate different
things that they want to incorporate as part of their program.
So if you have a corporate culture, such as Mr. Faria and
his company, where the senior executives are saying, hey,
healthcare cost is a high-ticket item on our P&L, we want to do
something about it. We understand we are going to have to
commit the time, and they do that. The smaller firms can be
successful again if they have the financial wherewithal. But
the opposite is true. If you are a small business owner and you
are just looking at this I just want to save costs but I am not
willing to put the time in, do not do it. It is not going to be
a good investment for you.
Chairman COLLINS. So, Ms. Frick, I have got 75 employees. I
am in a community-rated plan, not experience-rated. I am really
worried about what my insurance costs are. It is now whatever
today is, November 14th or whereabouts, and I have got a short
time to make a decision. So I come to you and I say I really
want to explore self-insurance as opposed to my community-rated
plan that I am offering. What do you do? Could you walk us
through step-by-step like the actuarial calculation? You call
an insurance company. How do I get stop-loss, et cetera, et
cetera. What do you bring forward as far as a network, you
know, renting a network, having a network, the blues, getting
to. What does the employee seek because he used to a Blue Cross
Blue Shield card or some other HMO. So walk us through someone
like me coming to you saying I do not know anything much about
anything. How do I get started? Where do we go? And what is the
timing?
Ms. FRICK. Okay, sure.
So first, we take your census of eligible employees with
all their demographic data--age, gender, zip code--so that you
can do----
Chairman COLLINS. Number of family members, et cetera, et
cetera?
Ms. FRICK. Who is covered under the plan. Then take if any
kind of experience is available, even on an aggregated basis.
Take that information into consideration. Take your current
plan design. Call up reinsurance markets. There are a lot of
them. And market it. See who bites, who does not. There will be
reinsurance carriers that say no, this is not a risk area based
on the industry or the size that we want to take a look at.
There are others that are willing to take a harder look. So we
get that information back, look at the contract basis, the time
period meaning are there claims incurred within 12 months but
then paid out in 12 months, 15 months, 18 months. Take a look
at the administrators that you have available. Not every third-
party administrator will pair with a reinsurance carrier, for
example, so you have to make sure that they match. Then who is
the pharmacy benefit manager that I want in there? What is the
PPO network that I can rent? A lot of times with third-party
administrators, they can bring those pieces to the table for
you, but certainly, in a self-funded arena you have the option
to put together those pieces and parts that work best for you.
On the other side, with market innovation, instead of going
straight over to the self-funded side, maybe we look at a
hybrid. Look at something that looks and smells and is self-
funding but still appears or still can function as fully-
insured from a premium payment perspective. For example, there
are a couple of national carriers out now that have come out
with something that is like a level funding plan. So it is
self-funded. There is ASO administrative services in there.
There is reinsurance. All the pieces and parts, but they set a
fixed dollar amount every month as far as premium payment
versus that little volatility you will get in a claims payment
from a truly self-funded plan. It is a fixed dollar amount. So
at the end of the contract period, take a look and see, okay,
if I paid less in premium than was paid out in claims, then I
have the opportunity to receive a portion of that back. I keep
it. It is mine. In a fully-insured market, I am sure you all
are aware that if I pay less in premium that the carrier paid
out in claims, they keep the money. It is their win. In truly
self-funded, that is all my money back.
So this hybrid gives the opportunity for them to get a
percentage of it back, so a split, for example, with the
insurance carrier. Now, on those times when the employer pays
more or more claims are paid out than premium is received,
obviously there will be adjustment for the next time period to
account for claims and expected risk going forward. So it makes
a little bit of an easier transition, so it is more stable
month-to-month versus the volatility of this month I have
25,000 in claims, next month I might only have 7 and the next
month there is 17. It gives some more stability to that
employer of that 7,500, 150 space.
Chairman COLLINS. All right. So now how long does this
take? I call you today. When can you come back at me? Does this
take a week, a month, two months? What would you say?
Ms. FRICK. I would like to do it in two weeks or less.
Chairman COLLINS. Okay.
Ms. FRICK. My methodology has always been to have a 60-day
lockout period and an agreement with a reinsurer. Meaning 60
days before the effective date the plan is going to be set up,
locked in, and if we are going to have a January 1, then we are
going to make sure that by October 1st or November 1st at the
very latest, we know what we are doing, who we are playing ball
with, where the claims are going, who is the pharmacy benefit
manager.
You pointed out a good illustration about everyone is used
to their Blue Cross card or United Healthcare card and it has
got that logo on it. Well, the cards that come out still have
the logo on it. It still has a network attached to it. Now,
maybe it says ABC administrator where the claims go, but the
logo for the network is still there, the pharmacy benefit
manager, such as an Express Scripts, Caremark is still on
there. So it is still identified by the employee as theirs. The
pluses in self-funding the employer also throws their log on
there a lot of times because they are the ones that are
responsible for the plan.
Chairman COLLINS. Good. That is I think helpful as, you
know, again, people are facing this. Right now, Mr. Faria--by
the way, I am a fellow YPOer. I have been in a little bit
longer than you. I graduated into once you are 49 years old you
become a W, world president organization. So I am officially a
WPOer but long-time YPOer.
So you are, I am assuming, in a forum group?
Mr. FARIA. I am.
Chairman COLLINS. So just out of curiosity, eight or 10
guys, you all share your information monthly in confidence, but
without breaking a confidence, I am just curious. How many of
your fellow eight or 10 forum members are self-insured like you
are?
Mr. FARIA. That is forum confidential. Just kidding.
No, I think there is about two of us out of the eight.
Chairman COLLINS. Is it a discussion point that is pretty
active right now?
Mr. FARIA. A lot of the time. I think, again, as I had
mentioned, YPO has done more call-out sessions for our entire
chapter to discuss this point, but definitely--and we also have
an individual who is affected by the medical device tax and he
certainly has had some issues with that, of course. So from
time to time it is a discussion. It is not immediately. I think
right now everybody has already made their decisions on what
they are going to be doing. We kind of planned ahead.
Chairman COLLINS. So now yesterday I did meet with Mr.
Ferguson ahead of time. He came in a little bit early. We were
talking about the fact that you, as the self-insured now get
some interesting information monthly or quarterly. You do not
know which employee may have gone to the emergency room or
which employee is on what particular prescription drug but you
get active information, what your cost drivers are, in some
kind of aggregated fashion. And as Mr. Ferguson was sharing,
sometimes, because now you are bearing the cost, you could make
changes in some way or another that would address to maybe
incentivize healthier behavior. He gave me the example of maybe
lowering a deductible to go to Urgent Care, raising a
deductible to go to the emergency room, because you see, oh, my
God, I have three employees that just went to the emergency
room. They should have gone to an Urgent Care. Share with me as
someone four years experienced into self-insurance how you have
used that data to either have a healthier workforce or
incentivize what we would call cost-effective user-driven
behavior.
Mr. FERGUSON. Certainly. You gave an example that was one
of our true success stories. When we gained access to our data,
we do not usually look at it on a monthly basis and we are not
reacting like that, but typically, we will evaluate it on a
half-year basis or so. But when we first got our data and we
compared the national norms, we realized that our employees
were using the ER at a higher than national rate. We also were
given information to realize that it was not actually emergency
care that they were getting. So that these employees were
really going to the emergency room for issues that really
should have been handled by a physician. So we were able to
structure our plan in a way to incentivize people to go to and
get a physician. And the benefit of that is obviously I kind of
look at it as a win-win-win. The overall plan wins because we
are not spending--typically one ER visit for a common visit we
are being charged $1,000. The business wins out because we are
able to reduce that cost. I look at the employee now wins
because they also have a lower cost but now they are developing
a relationship with a physician. They are developing a history
with that physician so that the next time that they come in it
is not that they are just going up to some stranger in the ER.
And so this starts to help promote healthy values. And then the
other win of this is that the overall health system is now
being used more efficiently. The ER is not being used to cure
the common cold. A physician is treating that. And so the ER
can be focused on more pertinent matters.
Chairman COLLINS. So now, Ms. Frick, if you have a pharmacy
benefits manager, a formulary, if you will, for your
prescription drugs, a company could decide I really want--and
really encourage generic drugs--so I am going to have a plan
that has got a $5 co-pay for generics but if somebody wants to
opt into the name brand, have a significantly higher, again
letting the user make that determination, is that something
that you could tailor into a self-insured plan?
Ms. FRICK. Yes, absolutely. And then I would encourage on
top of that to have lesser language so that you are paying the
lesser of the co-pay or the retail price of the drug. So you
are still encouraging people who need their prescriptions to
fill their prescriptions. Still go get your $4 generics if you
want to from the Wal-Marts, the Targets, but know that you are
not going to pay any more than say if our plan has a $10 co-pay
for generics, that is where your cap is. So it is still
encouraging the healthy behavior.
And I will say to a point on employees, when the employer
is engaged in the plan and they take an active look at where
there is spend, employees value the plan more. It does not
matter if now I have to pay $100 to see the doctor whereas I
paid $50 before, if they can see in other areas where the
employer is really engaged and understands what is important to
his employee population, then they are more likely to tailor
their plan better and you will have the more effective measure
and usage from the employees. They will stay out of the ER and
go to Urgent Care or an after-hours clinic more than they were
before.
Chairman COLLINS. One last question. If I sign up and I go
self-insured and a year in I got, you know what, I did not
quite know what I am getting into, is it very easy or just
automatic that you could drop that plan at that point and move
back into a community-rated plan?
Ms. FRICK. You can. However, you need to make sure that you
have a run out provision for the claims that were incurred
before. So you are either electing the terminal liability and
the run out upfront or you are reserving the option to execute
it upon the policy termination. You never want to jump in and
out of self-funding and fully-insured, back and forth. From an
employee perspective, they do not know how it is, as we said
before, how the plan is funded, but from an employer and an
administrative, that would be a nightmare.
Chairman COLLINS. Okay. Before I go to Ms. Hahn to close, I
notice that our Congressman from South Carolina has arrived.
Mr. RICE. I yield my time.
Chairman COLLINS. All right. I guess----
Mr. RICE. I yield.
Chairman COLLINS. Oh, okay. He came to listen. Thank you.
Mr. Rice, I appreciate you being here.
Ms. Hahn.
Ms. HAHN. Thank you. I have certainly found this a very
interesting hearing. I have certainly learned a lot.
Mr. Faria--is it Faria? Faria. You all have said it
differently.
Mr. FARIA. Faria. Yes.
Ms. HAHN. So I am just curious about a couple things. Now,
you talk about having a gold plan, which sounds admirable. How
does that compare to what the Affordable Care Act is qualifying
as a gold plan and the benefits that have to be offered?
Mr. FARIA. To the best of my understanding, that is why I
am saying gold. I am comparing it to an Obamacare gold plan.
Ms. HAHN. Okay. So you, even though some of these consumer
protections under the ACA do not apply to self-funded groups,
you have decided to cover those?
Mr. FARIA. Yes.
Ms. HAHN. So you do not discriminate against someone who
has a preexisting condition or being a woman.
Mr. FARIA. Not at all.
Ms. HAHN. Not at all. So that is admirable.
One of the things I am interested in, and I do not know if
Ms. Frick or Mr. Faria could speak to that, so when the
reinsurance company is analyzing your company and determining
what they would charge you, what are they looking at and what
are they charging more for?
Ms. FRICK. They look at the current plan design or the plan
design that you have created. And every piece in part to that
plan has an actuarial value. So there is a value to the plan
itself, just as we know we have the minimum value at the 60
percent, so we all understand how that works. But then when
they look at the potential risk or the health conditions--let
us say it is a known factor, that we know what some health
conditions are, there is a dollar amount that is associated
with the cost of the care of those particular measures. And
then further, has the employer or its administrator or a
disease management company helped to take steps to mitigate
some of those claims? For example, for diabetes management, I
have put in a plan before where it was not opt in or out. First
fill of a diabetic drug the patient was put into the plan. They
were now followed by the nurse. I would rather pay more in
pharmacy costs as an employer than more costs for the medical
part because you are going to pay--that person will have more
medical problems over time if they do not control their disease
and have disease management with healthier living, taking the
required medications, have their timely A1 season, something of
that nature.
So the reinsurance carrier takes a look at everything so
they have an understanding of okay, that employer has now
decided that they are going to have a $50,000 specific
deductible for each person on the plan. So where does that put
me after the 50 for this employer, for the diseases or health
conditions that are contained therein. Where does that place
me? If I see that the employer is assuming more of the risk
upfront on the first dollar, then that is better for me. I will
reduce it a little bit. If I see that I will potentially take
more on the backend from a reimbursement perspective and now I
am funding that, then I am going to have to put some more into
my rates.
On the flipside, they can also laser, but a laser is just
putting either a different contract on an individual or a
higher specific deductible on that individual. They are not
excluding them from having reimbursable claims. They are saying
if my specific is at 50 but because Susie-Q's specific--because
of her conditions is now at 100,000, then the reinsurer will
start reimbursing after her 100,000 claims and the employer has
taken the first 100. They are not excluding her from coverage.
They are not excluding her from reimbursable claims. They are
just putting----
Ms. HAHN. What would be some examples of some laser
contracts?
Ms. FRICK. Kidney disease. End-stage renal failure. High
dollar premature babies that have been born that it is obvious
that they will have longer time for recovery, they will have
multiple surgeries going forward. Those are typically the two
highest cost drivers.
Ms. HAHN. And do you have any laser contracts, Mr. Faria?
Mr. FARIA. Yes, we do, actually. We had a situation where
an individual has some cancer and they were lasered. I will say
that the laser does add some risk to the self-insurance plan.
You can have a situation where a person gets cancer and then
the reinsurer comes in and says we are going to laser, meaning
that their deductible now is let us say 300,000. I will say,
however, that there are plans out there, and we have actually
signed one now, that you can have a no laser contract so for an
additional amount of money you can actually put forth and say
that next year when we reapply, there will not be any lasers.
Ms. HAHN. And does your employee who has been lasered, do
you charge them more?
Mr. FARIA. No.
Ms. HAHN. No?
Mr. FARIA. No, we do not do that.
Ms. HAHN. So everybody pays the same?
Mr. FARIA. Right. I mean, we have a tier based off of
whether you are single or have a family. We also have a tier
based off of how the person scores on the physical, their
biometrics, how they are doing in improving healthy living.
Ms. FRICK. I am sorry to interrupt. May I make a comment to
your question about lasers and what employees pay?
Ms. HAHN. Right.
Ms. FRICK. The employee typically has no idea what their
laser is. They see their plan benefit design. They see I have
$1,000 deductible and a $20 office visit co-pay. The stop-loss
deductibles and the lasering is on the financial funding side
of the plan. So his employee that might have that $300,000 does
not know that he is responsible for $300,000 of her first
dollar claims versus 50 for mine.
Ms. HAHN. Got it.
So the other thing that was interesting was you having
access to the data. Now, you do not have access to the
individual employee and whether or not they went to the
emergency room, or you just have a cumulative----
Mr. FARIA. Right. It ends up being cumulative.
Ms. HAHN. But do you know who the employees are?
Mr. FARIA. I would say that you do not have direct names.
Ms. HAHN. You can figure it out?
Mr. FARIA. Unfortunately, in a small business environment,
you do know that a certain employee might have been out and to
the hospital for a period of time and you will get claim data
that said this particular surgery happened at that point in
time.
Ms. HAHN. Yeah, you know, I have been having an open mind
about this but that part of it really would bother me as an
employee. That is a real loss of privacy with your employer. It
is one thing for your insurance company to have that
information. It is another thing for your boss to know what is
going on in your personal life and why or why not you have
chosen to seek medical care. So that part bothers me. What do
they feel about it?
Mr. FARIA. Well, I think in a lot of cases, in fact, most
of the cases, just the environment that we have created, kind
of a family culture, in most of the cases----
Ms. HAHN. I would not want my own family to know when I go
to the emergency room.
Mr. FARIA. Yeah. I mean, we are hearing that information
actually from the employee themselves so that it is not really
a situation where we are finding out that through nefarious
means. But I will have to say that is an issue. And just like
everything, the wrong person with that information can make
some bad decisions. But now we are talking almost like fraud or
a HIPAA violation. Somebody has to really kind of break the law
to really start utilizing that information.
Ms. HAHN. Right. Except you are not a doctor so you have
not really taken a Hippocratic oath.
Dr. Blumberg, so in your report, Small Firm Self-insurance
under the Affordable Care Act, you present a situation in which
a stop-loss insurance plan would pay for all medical costs. The
employers would bear no risk and the stop-loss insurance would
essentially act as a traditional health insurance without
several ACA regulations. Would you elaborate a little bit on
that because I am getting sort of mixed messages here about
what these stop-loss or these reinsurance companies actually
are. Are they just reimbursement financial vehicles or are
they, in fact, acting like health insurance?
Ms. BLUMBERG. Sure. And I think the lines begin to blur a
bit. And some of it is the increased incentives for these small
firms to self-insure under the ACA without other action being
taken. And the reason is that most states today do not regulate
the definition of stop-loss insurance, and neither does the
Federal government. So as a consequence, we are seeing more and
more ``attachment point'' plans being issued. Some regulators
in Michigan, for example, informed us that they are seeing not
only more stop-loss policy forms being filed with regard to
small firm coverage but with much lower attachment points, as
low as they have seen $5,000. And so what that means is if
there is no regulation that defines what stop-loss means, then
you could sell--not that I am saying these folks do, but you
could--others could sell a stop-loss plan with a zero dollar
attachment point. And what that would mean is essentially it
would act as unregulated health insurance. So if the employer
that was self-insuring, for example, said I am going to have a
$1,000 deductible plan, a zero dollar attachment point on a
stop-loss plan would mean that the stop-loss plan would start
to reimburse after the individual hit their $1,000 deductible.
So when you do not define regulatorily what stop-loss is, then
stop-loss can morph into whatever you want it to be.
Ms. HAHN. In terms of what the self-insured employer has--
what kind of plan they have created?
Ms. BLUMBERG. Right. So the self-insured employer can
decide, okay, as I used as an example, I am going to have a
$1,000 deductible plan for my employees with a 15 percent co-
insurance on expenses over that just to lay something out
simply.
Ms. HAHN. Right.
Ms. BLUMBERG. And then they can go and buy a stop-loss
policy that is going to internalize all of the claims that
would come into the firm beyond what the individual is required
to pay. But because it is referred to as stop-loss and it is
sold by a reinsurer, then that means that the individual--the
individual firm that is providing a self-insured plan to its
workers, is not subject to the regulations, the premium rate
regulations, the essential health benefit regulations, the
actuarial value rules within the Affordable Care Act for other
small fully-insured firms.
Ms. HAHN. So if this--and I know in California, we have
actually passed legislation that would prohibit stop-loss
insurance from issuing plans with specific deductibles under
$35,000 to small businesses with less than 100 employees. So do
you think that kind of regulation is helpful?
Ms. BLUMBERG. It is helpful. According to the actuaries at
the National Association of Insurance Commissioners who have
reevaluated the situation very recently, that $35,000, which is
helpful, is still too low in terms of the level at which we
want to dissuade more vulnerable small businesses from taking
the self-insurance option. And while there are a number of
regulations under ERISA to which these small self-insuring
firms are subject, as was mentioned earlier, the issue is
really that the specific regulations to which they are exempted
from are precisely the ones that are changing the way that
small group insurance is priced under the Affordable Care Act.
So it is not so much the number of them as which ones we are
actually talking about. And so that is important to keep in
mind is that once you give people an out to the very rules that
determine how risk is shared in a small group market, you can
have a very significant effect.
Ms. HAHN. And maybe for the whole panel, how do we strike a
balance between the need to protect firms against unexpected
costs and the need for an affordable method of insurance for
small businesses, including small businesses that choose to go
to the exchanges, and how do more self-funded and reinsurance
combined, how is that going to affect small businesses going
onto the small business exchange?
Does anybody have----
Ms. BLUMBERG. Well, I can comment. There are very direct
implications as our analysis showed for those small firms that
want to buy fully-insured products. Once you have basically an
outlet from the sharing of risk for potentially the healthiest
and most financially valued firms. So if you have self-
insurance and it is easy to go back and forth, even with some
financial risk for the healthy small employers, the
implications are that the average risk in the fully-insured
market, which is both the exchange and outside of the exchange,
the way that a lot of the small employers are buying already
today, it ends up increasing their risk very substantially. So
the idea is you can salvage the stability and the security of
the plans and the average price of the plans that are expected
to emerge in the new small group fully-insured market by
limiting the number of small employers who would end up going
into self-insurance either by increasing the attachment point
at which they can buy stop-loss coverage or by prohibiting its
sale for small firms.
Ms. HAHN. Thank you. Thank you.
Chairman COLLINS. Well, thank you. Let us see. It is 11:35
and the president is going on the air as we speak announcing
that he is going to allow insurance companies to continue to
offer plans that have been canceled. We will just see where
that ends up, but I guess that is happening even as we speak.
I want to thank all the members for speaking today. This
testimony is very timely, and the issues are real. Certainly,
Dr. Blumberg does point out that as small employers look to
control their own costs, to control their own profits and their
future, in doing so there could be a negative impact on the
community-rated pools. But I would point out that happens today
because the large employers are all self-insured. So when you
really look at what is happening today, that segmentation of
risk has happened in a huge way because any and all employers
with over 500 employees are all self-insured. And so it is just
a true statement as people peel out and they manage their own
risk as Mr. Faria is managing his and understanding how to
incentivize good behavior, going to Urgent Care instead of
emergency rooms. As that happens, the pool of folks left in the
community-rated pools may get more and more toxic from a
standpoint of risk and hence, cost. But there is nothing
perfect in life and I think small business exists to produce a
product, to make money, to grow their business, create jobs,
and anything we can do to help small business create jobs by
controlling their costs is, in fact, the biggest benefit that
we have and the biggest problem we have in this country today
is a lack of jobs. So for that reason I know I am going to and
the Committee will certainly be suggesting to someone--and I
will pick the number, over 25 employees--to go out and take a
look at self-insurance. It is not going to be perfect for
everyone. Buyer beware as was also pointed out. Make sure you
have got a good TPA. Make sure that TPA has got a good pharmacy
benefit manager. Make sure that you understand your risk on the
stop-loss piece, both individually and in the aggregate. And it
is going to take time but I certainly, as it is mid-November,
would encourage any and all companies. And as I understand it,
many could do so and decide to kick it off on April 1st. When
they sign up for community plan, generally they are not locked
in. So again, I want to thank you all for coming. I think this
was very timely and I, to the best of my knowledge, pretty much
covered, crossed most of the Ts and dotted the Is.
I will ask unanimous consent that members have five
legislative days to submit statements and supporting materials
for the record. Seeing no objection, so ordered.
The hearing is now adjourned. Thank you again.
[Whereupon, at 11:18 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC] [TIFF OMITTED] T5594.001
INTRODUCTION AND EXECUTIVE SUMMARY
Good morning Chairman Collins, Ranking Member Hahn and
members of committee. My name is Mike Ferguson and I serve as
President and CEO of the Self-Insurance Insurance Institute of
America, Inc. (SIIA). I am pleased to join you here this
morning for such an important and timely hearing.
SIIA is a national trade association that represents
companies involved in the self-insurance marketplace, including
self-insured organizations and their business partners, mostly
in the small and midsized market segments and represent both
private employers and union-sponsored Taft-Hartley plans.
My testimony this morning will address six general areas
that should be of interest to the committee.
What is Self-Insurance and How Does it
Differ from Traditional Health Insurance
Who Self-Insures
The ACA and Self-Insurance Trends
The Advantages and Disadvantages of Self-
Insurance
Federal Regulation of Self-Insured Group
Health Plans
Stop-Loss Insurance Overview and Marketplace
Demographic
WHAT IS SELF-INSURANCE AND HOW DOES IT DIFFER FROM
TRADITIONAL HEALTH INSURANCE?
Should an organization wish to sponsor a group health plan
for its employees or members it has two basic options. The
first option is to purchase a traditional group health
insurance policy from a licensed health insurance carrier.
Under this arrangement, the organization pays the insurance
carrier a fixed premium and the carrier provides health care
coverage to the group in accordance with specified policy
terms. By choosing the traditional insurance option, the
organization transfers the health care-related financial and
legal risk to the carrier.
The other option is to retain the financial and legal risk
through the use of a self-insured group health plan. This is
also known as self-funding. Under this arrangement the
organization pays eligible health care claims as they are
incurred, either directly like other business expenses or
through a separate trust. Self-insured employers typically
outsource claims administration functions and retain stop-loss
insurance as a financial backstop for catastrophic claims.
WHO SELF-INSURES?
According to the 2013 Employer Health Benefits Survey, 61%
of covered workers in private employer plans receive coverage
through self-insured arrangements. Of more particular interest
to this committee is that 16% of small employers with 3-199
workers are self-insured. This is up slightly from 15% in 2012.
But self-funding is not limited to the private employer
marketplace. It is estimated that there are about 1200 union-
sponsored Taft-Hartley health plans serving a variety of
industries and that more than half are self-insured. And again,
of particular interest to this committee, many of these self-
insured Taft-Hartley plans are small, with as few as 50 to 100
members.
Given these statistics, it's clear the topic of self-
insurance is important to both the business and labor
communities. And it's also clear is that self-insurance is not
simply a privilege for the very largest organizations.
THE ACA AND SELF-INSURANCE TRENDS
Now that I have provided this general background
information, let me address a recurring question of what effect
has the Affordable Care Act had on the decision process of
smaller employers who may be considering self-insurance?
Recent pronouncements by many policy-makers and pundits
that by self-insuring organizations are able to bypass ACA
regulatory requirements and operate health plans with little or
no consumer protections are misleading. As my testimony will
demonstrate, smaller organizations that choose to self-insure
actually subject themselves to more regulation, not less. In
this regard, we respectfully dismiss the conclusion by some
that the decision to self-insure is influenced by the objective
to ``get out of Obamacare.''
Rather, it is our view that the ACA is more of an indirect
factor in the decision to self-insure for smaller
organizations. This more nuanced conclusion is based on the
belief that the primary motivating factor of most organizations
that have or are considering the self-insurance option is that
they want to take more control over the cost and quality of the
health benefits they are providing to their plan participants
over the longer term.
While we will leave to other stakeholder groups to make
broader statements about the merits of the ACA, we believe it
is fair to say that the law has created added uncertainty in
the health care marketplace and contributes to more acute cost
fluctuations, at least in the short run. So in this current
post-ACA environment, self-insurance does provide smaller
organizations more certainty in their ability to be able to
continue to provide quality health benefits along with will
providing them better costs containment capabilities.
Now that we have established the size and diversity of the
self-insurance marketplace and provided some general commentary
on how the ACA has influenced this marketplace, let's talk
about the advantages and disadvantages of self-insurance in
order to better understand how organizations must consider this
plan funding decision.
DISADVANTAGES OF SELF-INSURANCE
It's important to state right up front that self-insurance
is not the right option for all organizations. Smaller
organizations, in particular, should carefully consider what it
means to be self-insured.
Financial Liability
The primary consideration is that as a self-insured
organization, you are responsible for paying all eligible
health care claims incurred by plan participants. While stop-
loss insurance provides for a limited reimbursement mechanism
for higher cost claimants, the self-insured organization
accepts all financial liability for the group health plans.
Simply stated, if you are not prepared to cut checks to pay
providers, you should not be self-insured.
Legal Liability
In addition to accepting financial liability, self-insured
plan sponsors also subject themselves to significant legal
liability. Plan fiduciaries (normally organization executives)
are subject to civil and criminal penalties under the Employee
Retirement Income Security Act (ERISA) to the extent that plans
are not administered in the best interests of the participants.
Simply stated again, if you are not prepared to understand and
ensure compliance with applicable federal law, you should not
be self-insured.
Time and Focus Commitment
While self-insurance allows plan sponsors more flexibility
to deliver quality health benefits in a more cost effective
way, sponsors commit the necessary time and focus to design and
manage their plans in order to achieve the desired results. So
the final simple statement is that if you are not willing to
make this commitment, you will likely be better off in a
traditional, fully-insured arrangement.
ADVANTAGES OF SELF-INSURANCE
There are many reasons why organizations conclude that
self-insurance is the best health plan funding option, despite
the considerations noted above.
More Cost Effective Than Fully-Insured Plans
A well run self-insured health plan is generally less
expensive over time compared with the traditional insurance
options. The ``over time'' caveat is important because claims
experience often varies from year-to-year. Traditional
insurance premiums must account for the carrier's marketing
cost and profit margin, among other cost escalators that are
not applicable to self-insured plans, as they are essentially
not-for-profit health plans.
Plan Design Flexibility
Federal law provides self-insured plans greater flexibility
in designing benefit packages that better meet the specific
needs of their plan participants. For example, organizations
with a predominately female workforce can structure their plans
to incorporate more robust health benefits that would be
utilized by female plan participants. Self-insurance plans can
also structure more innovative reimbursement arrangements with
health care providers.
Improved Cash Flow
Self-insuring allows claims to be funded as they are paid.
Fully insured premiums constitute a form of pre-payment. With
self-insuring, a plan pays health plan costs only after the
services have been rendered. Insurers set health insurance
premiums at levels that anticipate projected increases in
healthcare costs--usually well in excess of the actual rise in
costs.
Ownership of Health Claims Data
Health claims data is extremely valuable for plan design
purposes. But under traditional insurance arrangements,
carriers maintain that they own this data and employers cannot
get access to it. By contrast, self-insured organizations have
control over this data and can use it to help deliver benefits
more efficiently and control costs.
ERISA Preemption of State Regulation
ERISA provides uniform regulatory stability to employers
that operate in several states, so those companies do not have
to adopt a patchwork of design variations to comply with
various states' requirements. This is particularly important
for multi-state organizations.
Incorporation of Value-Based Benefits and Wellness Programs
As medical costs have skyrocketed, self-insured plan
sponsors have been taking steps to reduce medical costs by
emphasizing prevention and maintenance care for chronic
diagnoses. Employees have the flexibility to design and
integrate into overall strategies, health risk assessments,
prevention and wellness programs tailored to the employer's
specific employee demographics and needs.
FEDERAL REGULATION OF SELF-INSURED PLANS
Some health care market observers contend that policy-
makers should be concerned about employers switching to self-
insured health plans and purchasing medical stop-loss insurance
in order to ``dodge'' requirements and fees applicable to
fully-insured health plans as provided for by the ACA. They
further argue that such a trend will contribute to adverse
selection and therefore compromise the viability of the health
insurance exchange.
SIIA believes this analysis is inaccurate based on a review
of how self-insured plans are actually regulated and the recent
findings of the RAND Corporation on this subject.
For purposes of our discussion, we will focus on non-
grandfathered self-insured plans, which by definition include
organizations who have switched to self-insurance since the
passage of the ACA. Non-grandfathered self-insured group health
care plans, regardless of stop-loss insurance arrangements, are
subject to almost all ACA health care market reforms,
including:
Prohibition on annual & lifetime limits
Coverage of dependents up to age 26
Prohibition on discrimination based on preexisting
conditions
Coverage of preventative services
Summary of benefits and coverage
Disclosure of plan transparency
Right to external claims denial reviews
Limitations on waiting periods
Right to provider designations
Mandated coverage of emergency services
Of the few ACA health care market reforms that do no not
apply to non-grandfathered self-insured health plans, there are
specific reasons why as follows:
Medical Loss Ratio - As self-insured plans are essentially
non-profit entities with the fiduciary requirement to use plan
assets for the exclusive benefit of the plan participants,
there is no ``profit margin'' to regulate.
Review of Rate Increases - Again, as self-insured plans are
non-profit entities and prohibited from using plan funds for
any other purpose, sponsors have no incentive to increase rates
any more than the rate of increase of medical claims and
expenses.
Essential Health Benefits - Existing federal law (ERISA)
explicitly declares that self-insured group health plans should
not be subject to state law. The ACA delegates the
establishment of EHB standards to the states. Self-insured
plans are subject to other federal mandates, so if Congress
intended these plans to subject to EHB requirement the law
would have been drafted accordingly. That said, self-insured
groups health plans are subject by the ACA's minimum plan value
rules and cannot establish coverage dollar limits on benefits
that are deemed to be EHBs. Finally, self-insured employers
have a significant human resource incentive to offer quality
health benefits.
Self-insured group health plans (grandfathered and non-
grandfathered) are highly regulated by other federal laws such
as ERISA, HIPAA and COBRA that existed prior to the ACA.
Consumer protection requirements/mandates under these laws
include:
Prohibited from denying coverage based on
preexisting conditions
Prohibited from discriminating on cover based on
health status
Mandated internal review procedures
Privacy protections
Plan fiduciary standards
Prohibited from rescinding coverage for non-
fraudulent purposes
Continued access to coverage post job termination
Will Self-Insured Health Plans Contribute to Adverse
Selection With Health Insurance Exchanges?
It is SIIA's view that there may be many factors which
could contribute to adverse selection among the federal state
health care exchanges but the growth in the self-insurance
marketplace is not one of those factors.
In support of this view, RAND Corporation concluded in a
2012 report that if small groups have the option to leave the
insurance exchanges to self-insure, there would be no negative
effects in terms of pricing for the remaining groups--no
adverse selection would result. A key excerpt of the report
follows:
``However, eliminating the option to self-insure does
not substantially reduce premiums on the SHOP
exchanges. This is because when self-insurance is not
an option, most firms that would otherwise have self-
insured decline to offer coverage rather than moving to
the exchanges. This result is driven by the assumption
that self-insured workers have low health insurance
costs relative to wages. Although the majority of
people who would otherwise have enrolled in their
employers' self-insured plans find coverage elsewhere,
these enrollees are spread out across other employer
policies, individual exchanges, SHOP exchanges, and
Medicaid. As a result, they have little effect on the
cost of premiums.''
STOP-LOSS INSURANCE OVERVIEW AND MARKETPLACE DEMOGRAPHICS
Stop-Loss Insurance Overview
As referenced earlier in this testimony, virtually all
smaller and mid-sized self-insured organizations retain stop-
loss insurance to provide a financial backstop to guard against
catastrophic claims. In this regard, I believe it would be
useful to clearly explain what stop-loss insurance is and how
it differs from traditional health insurance as it is more
closely related to liability insurance products than health
insurance products.
Quite simply, stop-loss insurance provides financial
reimbursements to self-insured organizations for health care
payments that exceed pre-determined levels, known in the
industry as ``attachment points.'' Stop-loss policy attachment
points can either be for specific plan participants and/or for
total claims incurred by the plan, known as ``aggregate.''
Unlike health insurance, stop-loss insurance does not cover
individuals nor pay health care providers regardless of
attachment point levels. It can only reimburse the sponsor or
the plan for health payments in excess of the attachment point.
Stop-Loss Insurance Marketplace Demographics
Milliman released a report earlier this year commissioned
by the Self-Insurance Educational Foundation (SIEF)
highlighting key policy characteristics found in the U.S.
employer medical stop-loss (ESL) market. The underlying policy
data was provided by eight of the largest stop-loss carriers
which collectively represent approximately 50% of the market.
Milliman therefore assumed that the data is a reasonable
approximation of the entire ESL market. A summarization of this
data revealed the following:
Employers with 100 or fewer covered
employees represent approximately one-quarter of the
ESL market if the market is measured by count of
employers. If measured by covered employees, however,
that same segment represents only 2% of the ESL market.
Most ESL purchasers obtain both specific and
aggregate stop-loss. However, employers with over 1,000
employees are more likely to purchase specific stop-
loss without aggregate. Very few employers found in the
underlying data purchased aggregate coverage without
specific stop-loss.
The data included employers that purchased
specific deductibles ranging from $5,000 to $2,000,000.
However, 81% of employers purchased deductibles of
$50,000 or greater.
The median specific deductible found in the
calendar year (CY) 2012 data across all plans was
$80,000. For groups with 50 or fewer covered employees,
the median deductible was $35,000. For groups of 51-100
employees, the median was $45,000.
Less than 0.2% of specific stop-loss
policies had specific deductibles of $10,000 or less.
About 0.3% of specific stop-loss policies were written
with specific deductibles of less than $20,000.
The data included employers that purchased
aggregate corridors ranging from 110% to 200% of
expected claims. By far, the most common corridor
(found on 90% of policies with aggregate coverage) was
125% of expected claims.
CONCLUSION
In conclusion, I would like to thank the committee again
for this opportunity to provide input on the increasingly
important topic of self-insurance and I look forward to
addressing any questions you may have. Additional Information
about self-insurance can be accessed on-line at www.siia.org.
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INTRODUCTION AND EXECUTIVE SUMMARY
Good morning Chairman Collins, Ranking Member Hahn and
members of committee. My name is Thomas Faria and I am
President and CEO of Sheffield Pharmaceuticals. I would like to
thank you for this opportunity to speak with you today with
regards to my experience on utilizing self insurance options to
provide affordable health insurance to the employees of my
company. I believe that self insurance can be a powerful option
to help the right small businesses understand and control the
continuously growing burden of health care costs.
My Testimony this morning will address four general areas
that should be of interest to the committee.
A brief background on Sheffield
Pharmaceuticals
Sheffield's experiences that led it to
decide to self insure
Sheffield's experience with self insuring
My opinion on and examples of the benefits
of self insurance for small businesses
COMPANY BACKGROUND
Sheffield Pharmaceuticals is a family owned, mid-sized
manufacturer of over the counter toothpastes, creams and
ointments located in New London, Connecticut. Sheffield has a
proud history of manufacturing in New England with the company
originally being founded in 1850 by its namesake Dr. Washington
Wentworth Sheffield, the man who is also credited with being
one of the first inventors of toothpaste. For over 160 years
Sheffield has strived to provide quality, affordable, domestic
made health and beauty products to the American consumer.
Today, Sheffield manufactures and sells over 22 different types
of tubed drug products to every major retail and discount store
chain in the country. Over the past decade Sheffield has grown
to a company with roughly $30 Million in revenue and an
employer of 162 workers. Sheffield provides health insurance to
75 of these employees and their families.
SHEFFIELD'S DECISION TO SELF INSURE
Like all big and small businesses, every year at the
beginning of spring, Sheffield would evaluate its health care
costs and send its health insurance plan out to bid to try to
gather competitive quotes. While, every year a modest increase
was expected, starting in 2005 the increases began to average
over 10% per year. At times we would look to lessen the blow of
this increase by either increasing the employees' share of
premiums or by cutting back on some of the benefits. This
worked somewhat effectively until 2008. In that year, a small
amount of employees in the company experienced significant
health issues which drove our utilization up. In response, our
existing health insurance provider increased our rates 25%.
This was followed up in 2009 when our provider told us that due
to our high utilization our rates would increase 39% while
other providers quoted higher. The company began at that point
earnestly looking at Self Insurance as a viable option. We
weighed the potential positive benefits of being able to gain
greater awareness and mastery of our total health care costs
versus the potential negatives of not having a fixed cost to
budget along with the potential for a catastrophic occurrence
to severely impact our costs. We knew that, due to the
relatively good health of our employees, the odds of having
another high utilization year were very low. When we asked our
insurance broker if he expected the insurance provider to
reduce premiums following a better utilization year and he
answered no, the decision to move to self insurance became an
easy one for the company.
SHEFFIELD'S EXPERIENCE WITH SELF INSURANCE
While switching to self insurance provided a new set of
challenges and has at times been a bit nerve racking in high
utilization years, our decision to self insure has been a good
one. Based on estimates of the yearly average increases that
the traditional health care plans charged in Connecticut for
plans of our size, we believe that self insuring saved the
company over $400,000 over the span of four years (see exhibit
A). This dollar figure amounts to roughly a 19% savings over
the expected costs of insuring traditionally during this
period. Our success with self insurance has allowed the company
to realize savings which have allowed it to still provide
``Gold'' caliber insurance coverage to its employees that
covers 75% of the total health care costs, all while holding
the overall costs to the employees in check.
BENEFITS OF SELF INSURANCE TO SMALL BUSINESSES
There are many benefits that self insurance can have for
businesses that have the right conditions and mindsets to
utilize it. First, as shown above, self insurance can have the
ability to save individual business plans considerable costs.
This however comes at the expense of having health insurance
costs fixed for a period time. Secondly, it allows access to
cost data that can show not only where a company spends it
health care dollars but also allows for comparison against
national norms. When a company knows these costs it becomes
more responsible for them. Thirdly, this cost transparency can
allow a business to develop its individual plan to educate and
incentivize its consumer activities to most efficiently use
health services, reducing both the business's, consumers' and
overall health system's costs. Finally, self insurance
encourages companies to invest now in education, incentives for
healthy6 living and preventative care to help promote long term
healthy behavior changes in its workforce. This leads to better
lives for their workers and hopefully can help stem off major
and expensive health issues in the future.
A perfect example of the benefits of the transparency that
self insurance provides small business occurred when after a
year of utilizing self insurance we examined our data on health
costs. The data showed that our employees had a higher
utilization of the Emergency Room than what should have been
expected. Further analysis showed that some employees were
utilizing the ER for non emergency care items that normally
should be handled by a physician, who typically charges a
quarter of what hospitals do. By doing this, not only were
these employees unknowingly increasing the costs to themselves
and the plan but also they were negatively impacting their
future health by not creating a regular relationship with a
primary physician. By adjusting our plan to incentivize
employees to find and utilize physicians instead of the
emergency room, Sheffield was able to use its health data in a
way that reduced overall employee and plan costs while also
benefiting the current and future health of its employees.
As an example of how self insurance motivates companies to
invest more into the health of its employees, once Sheffield
had committed long term to being self insured, we established
several programs aimed at educating and incentivizing healthy
habits amongst our employees. Along with paying for yearly
physicals, Sheffield also rewarded employees who received
yearly physicals with reduced premiums. This allowed employees
and their physicians an opportunity to develop a health history
and address potential major health issues before they occur. In
addition to the physicals, Sheffield has developed rewards
programs for employees that work towards maintaining healthy
biometric levels, including cholesterol, blood pressure, body
mass index and smoking activity. By addressing these important
health factors now we believe our employees' future health can
be dramatically improved. I do not believe that if Sheffield
was in a traditional insurance plan we would have invested in
these activities as the present day costs would have not
translated into long term savings in a traditional plan.
CONCLUSION
In conclusion, I would like to thank the committee for the
opportunity to speak with you on a topic that I believe can and
should be an important part of helping solve America's health
insurance woes.
Sincerely,
Thomas Faria
President and CEO
Sheffield Pharmaceuticals
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Mr. Chairman,
I want to thank you for holding this hearing and
highlighting the value of self insurance as an affordable
option for small businesses seeking to provide their employees
with quality health care.
As a former Chairman of the Self Insurance Institute of
America (SIIA), a former senior executive of two large Blue
Cross health plans and a former owner and current operator of a
third party administrator, I can tell you that self insurance
is an important model that is being adopted rapidly all over
the country. Given my extensive experience owning and operating
third party administrators (TPAs), I can tell you that not only
do self-insured plans provide businesses with an opportunity to
generate significant savings but they provide employers with
more flexibility to customize health care benefits for their
employees.
The commercial health insurance market has been steadily
moving from fully insured to self insured for over three
decades. Today 61% of all employers in the U.S. self insure and
the small group health insurance market is looking to self
insurance as a more attractive method of providing health
benefits to employees. According to the Kaiser Family
Foundation, 16% of small businesses currently self insure their
medical benefits. Many industry consultants believe that the
cost advantage of self insuring will drive the small group
market to over 50% self-insured.
As a former senior executive of health plans, I can attest
that the trend toward self insurance is undesirable for the
large national health insurance carriers. The reason for this
is that these large health insurance companies make much more
money from fully insured clients than self insured clients. In
many cases, I have seen that these companies make 300% to over
500% more profit on fully insured books of business compared to
self insured business. Fully insured small employers with less
than 500 employees are generally the most profitable groups for
the insurance carriers. Needless to say, they have a strong
financial interest in deterring smaller employers from making
the switch to self insurance.
Traditionally, self insurance is about 4-10% cheaper than
buying a fully insured health policy, and given the costs of
Obamacare that self insured plans avoid, this savings advantage
is projected to grow to over 15%. Yet despite these significant
savings, many states are trying to limit access to smaller
employers. Add to this that some health insurance carriers,
through pervasive market practices, are artificially inflating
costs for self insured plans.
In an attempt to protect their profits, some plans use
tactics to block their self insured clients from enjoying free
and open choice of vendors for their health plan, even though
when an employer self funds, they should have full control of
how their dollars are spent. Since the insurance company is
only providing administrative back office services like claims
processing for self funded groups, not taking risk, this
practice is very restrictive.
For example, some carriers block independent specialty
service companies from offering medical cost saving solutions
that would make self insurance even more financially
attractive. Specialty companies focus on driving cost savings
and quality improvements within a particular type of medical
service such as pharmacy, vision, dental, mental health,
radiology, oncology, fertility, transplant management and
physical therapy.
Further, many states ban smaller group self insurance or
create limitations by artificially forcing larger deductibles
on reinsurance for these smaller employers. These regulations
amount to a restraint of trade designed to perpetuate the state
tax revenue derived from fully insured plans. While many states
claim they limit small employer self insurance because they
want to protect those constituents, statistics show that small
employers can benefit from this alternative insurance and
strengthen their financial outlook.
Several large carriers will refuse to release the claim
experience for their insured smaller employers so that these
customers cannot get competitive self insurance proposals. This
practice is common and reflects further restraint of trade by
these dominant insurers while protecting their bottom lines.
These regulations and business practices have impaired the
self insured market, making it much less cost effective than it
would otherwise be under a truly free and open competitive
market. I felt it important that the Small Business Committee
is made aware of these detrimental market practices and I
encourage further investigation. I appreciate your
consideration of my testimony.
Sincerely,
Lawrence Thompson
Regional President
POMCO Group
House Committee on Small Business
Subcommittee on Health and Technology Hearing
November 14, 2013
Self-Insurance and Health Benefits:
An Affordable Option for Small Business?
Statement for the Record
Rep. Bill Cassidy (LA-6)
Chairman Collins, Ranking Member Hahn and members of the
committee. Thank you for the opportunity to submit my statement
for the record. Over 100 million Americans are currently
covered under self-insured health plans. The trend towards
self-insurance has been increasing for years, with 61 percent
of the commercial health insurance market currently covered
under self-insurance. Therefore, it is imperative to understand
that self-insurance market and protect it as an option for
businesses throughout the country.
Self-insurance provides employers with the flexibility to
customize their employee health benefits to best meet the needs
of their workforce. Self-insurance also helps control costs
because employers can more directly manage programs such as
wellness programs, which save money and make people healthier.
Unlike traditional health insurance, self-insured employers
take on the risk for their employees. It is impossible for the
employer to precisely predict the amount of health claims they
must provide from year to year. In order to limit the
employer's exposure, they often buy stop-loss insurance. This
financial tool is important to provide certainty to employers.
Moreover, the Obama administration has recently expressed
interest in regulating stop-loss insurance. As recently as
August 22, 2013 in a letter to Congress, HHS Secretary Kathleen
Sebelius confirmed that the department is interested in how
regulating stop-loss insurance could affect the risk pools in
the fully insured market. It is concerning that the
administration is considering limiting access to the stop-loss
financial tool for businesses. Stop-loss insurance has always
been a state-regulated insurance tool. Limiting it would have a
detrimental effect on the self-insurance market.
In order to protect the self-insurance market, I introduced
H.R. 3462, the Self-Insurance Protection Act (SIPA). The
legislation would clarify that federal regulators cannot re-
interpret stop-loss insurance as traditional health insurance
for the purpose of regulating it. This clarification would
protect this important financial option and provide certainty
for thousands of businesses across the country. The legislation
is supported by the Self-insurance Institute of America (SIIA)
and the U.S. Chamber of Commerce.
Again, thank you for the opportunity to include this
statement for the record. Also included are H.R. 3462, and a
letter of support by the U.S. Chamber of Commerce.
Sincerely,
Rep. Bill Cassidy (LA-6)
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