Now that the Supreme Court has upheld health reform, California officials will be moving at top speed to make changes to put the law into effect. Regardless of your opinion of health reform, there is one change California lawmakers are considering that should be scrapped in its current form.
I’m referring to SB 1431, which sets strict regulations on small businesses that provide health coverage to their employees through a self-funded plan. These regulations are so strict, in fact, that many businesses would be unable to continue offering health coverage to their employees – an ironic outcome from an overall reform effort intended to increase, not decrease, the number of individuals with health coverage.
At issue in this bill is “stop-loss” insurance, which small businesses who choose to self-fund their employees’ health plans use to protect themselves from catastrophic health claims. The insurance assumes liability for health claims at a specified dollar amount, and provides a reliable and predictable limit to the health costs an employer will have to pay directly.
These preset amounts are known as “attachment points” and are similar to deductibles in car insurance. If a small business has a stop-loss policy with a $20,000 attachment point, it would pay up to that amount toward an employee’s medical bills and any health costs above that amount would be covered by the insurer. Without this insurance, small employers could easily be wiped out by unforeseen health costs.
SB 1431 would set the minimum attachment point at $60,000 –three times higher than any other state. By pushing the attachment point so high, SB 1431 would effectively remove self-insurance as an option for small businesses, and force small businesses to bear higher health care costs if they want to continue offering health coverage to their employees. Given the current economic climate, how many small businesses can afford a sudden increase in health costs?
If supporters of this legislation believe raising the attachment point so high will encourage business owners to purchase health insurance from an insurer, they are likely to be disappointed. In fact, according to a report from the consulting group RAND, when self-insurance is taken away as an option, employers are more likely to simply drop coverage altogether.
Adding to the ranks of Californians without health insurance is surely not what this bill’s authors had in mind, but that is what it will do. California lawmakers should vote “no” on SB 1431.