Professor Mark Hall talks to the Pittsburgh Post-Gazette about small business health insurance coverage

You wouldn’t think a discussion about stop-loss insurance would produce “spirited” debate, but that’s allegedly what transpired this weekend when the National Association of Insurance Commissioners met to deliberate on the issue — its effect on the health insurance marketplace, on federal health care reform and, most especially, on small businesses.

There’s a reason most small businesses — those with 50 or fewer employees — don’t directly pay the health care expenses of their employees — it’s too risky. Instead, small companies that offer employee health coverage purchase group policies from health carriers, allowing the insurer to assume the risk.

But some insurers and the brokers that sell on their behalf are trying to change that, wooing smaller companies with 50 or fewer employees into the universe of “self-insured” businesses by offering ancillary stop-loss policies, which critics say is meant to sidestep federal health care reform measures and could result in higher health care premiums.

“The insurance companies have found a way around the [Affordable Care Act],” especially in states like Pennsylvania where the stop-loss market is largely unregulated, said Timothy Jost, health law professor at the Washington and Lee University law school.

Insurers, meanwhile, say they are simply responding to a segment begging for affordable insurance solutions.

First, some background: In the world of employer-provided health insurance, there are generally two types of companies — those big enough, with enough risk predictability, to insure themselves and pay their own claims; and those smaller and midsized companies that buy coverage from commercial carriers.

The two types are known as the “self-insured” and the “fully insured,” and historically, smaller companies gravitate toward the second classification. They don’t insure themselves — essentially, this means setting aside money to cover their employees’ health claims — because, with too few employees, a couple of major illnesses or surgeries could be financially calamitous.

Or so the conventional wisdom goes. These are unconventional times, though, and with federal health overhaul measures taking effect and a new online insurance marketplace set to be operational in 2014, smaller companies are taking a second look at self-insurance.

Self-insurance becomes possible when a company also buys “stop-loss” insurance. In this case, stop-loss is an insurance policy that pays out in the event that a company’s health claims exceed what has been set aside to pay for benefits in a given year.

But some experts are concerned that insurance companies, in trying to win new business, are offering stop-loss coverage at artificially low prices by poaching the healthiest of small groups.

The “artificially” low price comes in the form of a stop-loss policy with a low “attachment point,” or the dollar figure, per company or per employee, at which an employer stops bearing risk and paying claims, and the stop-loss insurer takes over.

In other words, the insurers would still be determining who to cover based on health history and risk factors, but because they are selling stop-loss insurance, this type of coverage isn’t regulated by the Affordable Care Act, or by most states.

Less-healthy small groups could be dumped into the more strictly regulated exchange marketplace, lifting premiums for everyone. And if a once-healthy small group turns into a bad bet with too many big claims, the insurer could then steer the company back into the exchanges. Stop-loss policies — unlike commercial health insurance policies — do not carry a “guarantee of a renewal” quote.

If younger or healthier groups self-insure, “all those prices will jump up,” because the risk and cost will be spread less broadly, said Mark A. Hall, a professor of law and public health at Wake Forest University.

Insurers, as well as the brokers that sell the products and stand to make bigger commissions on them, differ on the practice — many nonprofit Blue Cross Blue Shield insurers are against offering stop-loss insurance to small groups. One of Highmark Inc.’s subsidiaries, Highmark Casualty Insurance Co., offers stop-loss products only to groups of 100 or more.

Read the full story here.