Anthem Blue Cross, California's largest for-profit insurer and a unit of WellPoint Inc., began selling these self-insured plans to employers with as few as 35 workers March 1, down from its previous minimum of 250 employees. Assurant Inc., a New York-based insurer, is selling plans to companies in California and other states with as few as 10 workers.
Marc Neely, vice president for Cigna's self-insured business in 14 Western states, said his sales to small businesses with as few as 25 people are growing at a double-digit rate because employers are fed up with annual rate hikes of 10% to 15% on their traditional plans. Neely said Cigna offers stop-loss coverage as low as $20,000 per employee. "We're excited about California as a growth market for us," Neely said.
For The Record
Los Angeles Times Saturday, March 24, 2012 Home Edition Main News Part A Page 4 News Desk 1 inches; 38 words Type of Material: Correction
Health plans: A March 23 article in the Business section about state regulators' concern over a form of health coverage for small businesses misidentified the trade group Self-Insurance Institute of America as the Self-Insurance Industry Institute of America.
For The Record
Los Angeles Times Sunday, April 01, 2012 Home Edition Main News Part A Page 4 News Desk 2 inches; 71 words Type of Material: Correction
Health plans: An article in the March 23 Business section about California insurance officials proposing limits on a form of health coverage insurers are selling to small employers quoted Wake Forest University professor Mark Hall as saying low-dollar stop-loss policies, which guarantee that businesses won't be responsible for medical expenses over a certain amount per employee, are a "sham." In fact, Hall was referring specifically to plans with zero-dollar stop-loss policies.
Higher stop-loss amounts are more the norm. The average stop-loss policy for firms with fewer than 200 workers was $78,321 per employee last year, according to the Kaiser Family Foundation. Larger firms had stop-loss coverage of $208,280 per worker, on average.
Some other states have already taken action. Oregon and New York ban the sale of stop-loss insurance to employers with fewer than 50 people enrolled, making self-insurance unappealing. However, there is debate over states' power in this area because the ERISA law generally bars state regulation of self-insured plans.
This issue has even split the insurance industry. For instance, Blue Shield of California supports the state's bid for tougher rules. But that hasn't stopped the company from following its rivals by introducing self-insured plans in December for companies with as few as 100 employees. Previously, the company wouldn't go below 250 workers.
"It has the potential to take out the favorable risks and destabilize the fully insured market," said David Joyner, Blue Shield's senior vice president of large group and specialty benefits. "There is a risk of cherry-picking."
Joyner said it's "silly" for insurers to provide stop-loss coverage as low as $10,000 to $20,000 since that's not how self-insurance typically works. But Blue Shield isn't willing to completely cede the market to its rivals. "We definitely need to offer something because our competitors are," Joyner said.
Self-insured plans have an immediate cost advantage since there's no state tax on insurance premiums being passed along by an insurer. Starting in 2014, they will also avoid additional fees levied on health insurers to help pay for the federal healthcare law. The Self-Insurance Institute of America estimates companies can save 3% to 5% annually through better claims management.
Small businesses switching to self-insurance do gain more insight into why their medical costs might be rising so fast because they have access to detailed claims data. (Employee information is protected under federal privacy law.) Under California law, insurers aren't required to share those details with an employer on a traditional health plan. Cigna's Neely said companies like the ability to see whether their employees' use of healthcare is above average and to make changes in the benefit package to bring those costs in line.
Sima Reid, a broker and president of Twentytwenty Insurance Services in Lakewood, said she has seen a surge in interest among smaller businesses frustrated with soaring premiums. But she warns many small employers against making the switch.
"This is not a silver bullet for everybody to save 30% off the cost of providing healthcare to employees," Reid said. "This doesn't all of a sudden make sick people healthy."