Consumer Reps: PPACA Does So Change the Small-Group Market

Jost and the other consumer reps note in their comment letter that commenters who oppose new stop-loss rules have raised procedural questions, such as whether the ERISA Working Group has the authority to look at the matter; whether updating the 1995 model act would be the right way to adjust stop-loss attachment points, if any adjustments are needed; and whether the stop-loss industry has enough chance to respond the stop-loss proposals under consideration.

The consumer reps note that opponents of changing the model also say changes are unnecessary because, in their view, PPACA "does not make major changes in the small group market."

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) "prohibits group insurance from health status discrimination within groups and that all states limit small group underwriting and a few require some form of community rating in small group markets," the consumer reps write.

"The [PPACA] goes further, however, by prohibiting health status and gender underwriting in small group market, limiting age rating, and imposing market wide risk pooling and risk adjustment requirements," the reps say. "These requirements do not apply to stop-loss insurers."

Today, the reps say, "a healthy small group that chooses to self-insure faces the risk that if its experience deteriorates it will face much higher renewal rates in both the insured and stop-loss market."

Under the rules set by PPACA, "a group whose experience deteriorates would still likely face higher renewal rates in the stop-loss market," the reps say.

But the group with the deteriorating experience could then get coverage through the "health insurance exchange," or Web-based health insurance supermarket, that PPACA is supposed to create, the reps say.

The small group could then buy insurance at a standard rate set on a community basis, rather than a rate based on the small group's claims, the reps say.

"A clearer invitation to cherry picking and adverse selection is hard to imagine," the reps say. "This situation has been recognized by insurance advisors. A recent article, for example, advises employers: 'You should certainly review your past claims experience over the last several years. If your claims have been low, self-insurance may make sense. You should also examine your employee demographics. For example, if your employees are mostly young and healthy, it might be cost effective to self-insure their health-care expenses.'"

State regulators also are acknowledging that a likelihood of adverse selection exists, the reps say.

Some PPACA consumer protection rules apply both to insured and self-insured plans, but the PPACA essential health benefits rules, which describe what benefits must be offered by a plan, and the PPACA minimum medical loss ratio (MLR) rules and health insurance cost increase review rules do not apply to self-insured plans, the reps say.

"An employee enrolled in a self-insured small group will receive significantly less protection under the [PPACA] than one covered by a fully-insured group," the reps say.

The reps say they think issuing guidelines on stop-loss attachment points would be an appropriate response to the adverse selection risk.