The liberal "attack" on stop-loss insurance for small business has taken the form of law in California, though the legislation does offer some relief for those who have already purchased the catastrophic coverage for their businesses.
Stop-loss insurance has been a favorite among many small businesses looking to protect themselves from the financial toll an injury or illness to one or a few key employees can take on their enterprise. While not actual health coverage, stop-loss has been seen by healthcare reform advocates as an alternative to purchasing coverage for workers via the state exchange system — and thus it becomes a way for businesses to bypass exchange coverage.
To counteract the trend, several states have been tossing around legislation that would prohibit or restrict the sale of stop-loss coverage to small businesses. California's new law, signed by Gov. Jerry Brown this week, takes somewhat of a middle course.
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The law essentially kills stop-loss coverage as a small-business protection — but it grandfathers in any such plan that was in effect up to Sept. 1.
Businesses that had the coverage then can renew it pretty much forever, ignoring the new law.
At the heart of the legislation is a requirement that stop-loss insurance purchased by a business cannot exclude any employee from coverage regardless of the medical history.
In other words, if you cover one person, you have to cover everyone with pre-existing conditions.
This requirement guts the rationale businesses were using to buy it — to protect themselves from a huge unplanned medical bill.
It has other pieces to it that mostly apply to insurance companies, but overall, California's new law gives the Patient Protection and Affordable Care Act creators what they wanted: a way to force small businesses to buy coverage through the state exchanges.
Conservatives, of course, hate such laws. The Wall Street Journal condemned the attack on stop-loss in a September editorial which, in part, said, "small employers are more exposed to the risk of a single high-cost case of serious illness, so they buy this form of catastrophic coverage as a self-insurance backup. Liberals are pushing state legislatures to outlaw stop-loss policies for small and mid-sized business."
The newspaper warned that such laws could take a different, but still effective, form.
"Another poison pill is fixing the dollar levels where stop-loss policies are allowed to start paying — AKA 'attachment levels' akin to deductibles — so high that they are too risky for small businesses to buy. The standard can be as low as expenses exceeding $10,000 per enrollee, but liberals want to triple or quadruple that, or more."
With California leading the way, other states with a liberal bent may now follow suit. Whether they will include the grandfather clause will be a test of how determined they are to drive small businesses to the state exchanges.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
