Must Stop-Loss Insurance Comply with the ACA’s Group Plan Rules?
Question: Our company self-insures its major medical plan and buys stop-loss insurance to guard against the risk of higher-than-expected claims. We amended the plan to comply with the Affordable Care Act (ACA) — including covering children to age 26 and covering in-network preventive care without cost-sharing.
But our insurer says that our stop-loss policy doesn’t have to cover all of these changes. Doesn’t stop-loss insurance have to comply with the ACA? If not, how can our business protect itself?
Answer: Indeed, the ACA applies to health insurance and, in many instances, group health plans — including self-insured group health plans (other than plans providing only certain excepted benefits). But it doesn’t apply to stop-loss insurance bought by, or in connection with, a self-insured health plan. This is because stop-loss insurance generally isn’t health insurance. As a result, your plan must provide certain legally required coverage, but a stop-loss insurer isn’t required to reimburse your company for everything the plan covers.
To protect the business, you’ll need to understand the nature and amount of stop-loss coverage you’re buying. You also must assess the potential claim costs that won’t be eligible for reimbursement from your insurer. Stop-loss insurance isn’t required, and some plan sponsors — particularly very large employers — choose not to buy any stop-loss coverage. Plan sponsors that do buy it should recognize that it reduces — but doesn’t eliminate — the financial risks of self-insuring.
3 areas of inconsistency
Before buying or renewing a stop-loss policy, someone at your company — or an outside advisor — who’s familiar with the plan’s terms should review the contract. Any potential gaps between what the plan covers and what the stop-loss insurer will reimburse should be identified, and the associated risk should be assessed by the plan’s actuary. (Note that a stop-loss insurer also might impose specific exclusions for particular claims or individuals as part of its underwriting process.) Here are three examples of potential areas of inconsistency relating to the ACA:
- Eligibility. As noted above, the ACA generally requires that, if a group health plan offers dependent child coverage, the coverage be available on the same terms to all children until age 26. If a stop-loss insurer proposes more stringent eligibility requirements for dependent child coverage, a plan sponsor will want to work with its actuary to identify the potentially affected population and its estimated claim costs before proceeding with the stop-loss contract.
Similarly, a large employer (as defined under the ACA) would be wise to discuss its method for determining full-time employees for purposes of the employer shared-responsibility provision (otherwise known as “play or pay”) with the stop-loss insurer. The organization should confirm that all employees it determines to be eligible under the plan will also be recognized as eligible under the stop-loss coverage.
- Preventive care. The ACA requires nongrandfathered group health plans to provide first-dollar coverage — that is, coverage without requiring satisfaction of a deductible — for certain preventive care services obtained in-network without imposing any cost-sharing on the participant.
A stop-loss insurance contract may exclude some or all preventive care claims. However, because preventive care claims are more predictable than other claims (and not potentially catastrophic), a plan sponsor that understands the exclusion should be able to work with its actuary to estimate these claim costs and take them into account in managing the overall risk.
- Dollar limits. The ACA generally prohibits group health plans from imposing annual or lifetime dollar limits on essential health benefits. Furthermore, the law requires them to comply with an annual out-of-pocket maximum on participant cost-sharing. Compliance with these provisions will likely increase claim costs.
Plan sponsors that look to stop-loss insurance for protection should expect the insurer to impose either a dollar limit on the plan’s overall stop-loss coverage (because the insurer isn’t subject to the ACA prohibition) or higher stop-loss premiums to account for the uncapped nature of the claims risk.
Options to consider
If these or other potential gaps between plan coverage and stop-loss coverage are identified, consider whether you should attempt to renegotiate with your insurer. You may also want to solicit proposals from other stop-loss insurers or simply accept the additional risk and work with your plan’s actuary to ensure this exposure is taken into account in determining plan design features or participant contribution amounts.
Questions about the ACA’s Group Plan Rules ?