Will Your Business Bear the Brunt of ObamaCare’s Costs?

The Captive Insurance Times (CIT) recently published an article about a California bill that would drastically curb self-insured health plans for small and mid-size businesses.  The article is titled “SIAA Opposes Stop-Loss Legislation” and is written by Jenna Jones.  The article notes:

The Self-Insurance Institute of America (SIIA) has opposed a recent state bill, as it would stifle self-insured health plans.

According to the SIIA, the bill would threaten the employer-sponsored health benefit plans of thousands of California employees and their dependents, particularly among small- to medium-sized businesses.

The proposed bill, SB 161, would restrict employers’ use of stop-loss insurance to protect against catastrophic losses and also includes special restrictions on self-insured employers for groups of 50 or less.

SIIA chief operating officer, Michael Ferguson, explained the institute’s reasons for opposing the bill in a recent letter to Health Care Committee chairman, Senator Ed Hernandez.

Ferguson said: “Given that smaller employers in particular face significant financial challenges in providing quality health benefits for their employees and their dependents, it is more important than ever that they have as many coverage options as possible including self-insured group health plans.”

“By restricting the availability of medical stop-loss insurance through minimum attachment point requirements, SB 161 compromises the viability of the self-insured option … why would you want to make it more difficult and expensive for California employers to provide quality health benefits on a voluntary basis?”

To read the entire article, click here:

Link to Captive Insurance Times

Read Between The Lines – Salient Points from the Article

ObamaCare has its supporters and opponents.  Regardless of where one stands, a few things are certain.

ObamaCare will result in “unhealthy” population pools being covered by group health (fully insured) plans and ObamaCare exchanges (some administered by states and some administered by the federal government).

Insurers and exchanges have to insure all-comers, so corresponding costs are going to soar.

Employers with group health plans (fully insured) will experience jarring insurance premium hikes in the future.

Most large companies already self-insure, and there will be a flood of small and mid-size companies looking for a way to self-insure their health benefits to avoid being pooled in an “unhealthy” population and the staggering costs that will ensue.

By seeking to restrict stop loss coverage, California legislators are trying to prevent small and mid-size insurers from self-insuring.  Clearly, the California legislators that proposed this bill do not want small and mid-size employers to disengage from the “unhealthy” population that insurers who offer group health will have to cover.

These California legislators are clearly content to financially hurt small and mid-size companies while favoring large companies that can afford to self-insure their health care plans (due to the law of large numbers).

This is a clear example of legislators attempting to tilt the playing field to favor large companies at the expense of small and mid-size companies.

How Does This Relate to Captive Insurance Companies?

First, captive insurance companies can often be utilized in a small and mid-size employer’s health benefits plan.  Captives can be used as the primary vehicle to pay for health benefits.  Importantly, captives can also be used as a risk-sharing mechanism, enabling numerous small and mid-size companies to insure part of their health benefits through a captive.  Sharing risks in a captive helps all employers keep their stop-loss costs under control, even if a company has had a bad claims year.

Second, captive laws and regulations in the U.S. have moved in the opposite direction of this California bill.  Specifically, captive laws have increasingly leveled the playing field, enabling small and mid-size companies to enjoy the same formal self-insurance benefits that have traditionally been reserved for large companies.

Third – and most important – laws in California are often copied by legislators in other states.  The proposed California legislation restricts stop-loss insurance by raising the attach rates for small and mid-size employers.  A well-crafted self-insurance arrangement with a shared captive layer solves this problem.  By pooling risk with other employers in a shared captive insurance company, employers can add catastrophic stop loss at a higher attach rate and simultaneously avoid being crippled by a bad claim year because the group captive buffers claims.

Perspective

We have worked with small and mid-size business owners to help them own their own captive insurance company.  In doing so, we have helped many businesses and owners enjoy operating their business on a more level playing field versus large companies.  We expect small and mid-size companies to bear the brunt of ObamaCare as the law tilts the playing field against them.  Self-insurance of health benefits with a captive insurance arrangement can enable small and mid-size businesses to level the playing field and stay a step ahead of legislative ideas coming out of California.