[Federal Register Volume 77, Number 84 (Tuesday, May 1, 2012)]
[Pages 25788-25790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-10441]

[[Page 25788]]



Internal Revenue Service


Employee Benefits Security Administration


Centers for Medicare & Medicaid Services


Request for Information Regarding Stop Loss Insurance

AGENCIES:  Internal Revenue Service, Department of the Treasury; 
Employee Benefits Security Administration, Department of Labor; Centers 
for Medicare & Medicaid Services, Department of Health and Human 

ACTION: Request for information.


SUMMARY: This document is a request for information regarding the use 
of stop loss insurance by group health plans and their plan sponsors, 
with a focus on the prevalence and consequences of stop loss insurance 
at low attachment points. Given the limited nature of data available, 
the Departments of Labor, Health and Human Services (HHS), and the 
Treasury (collectively, the Departments) invite public comments via 
this request for information.

DATES: Comments must be submitted on or before July 2, 2012.

ADDRESSES: Written comments may be submitted to the Department of Labor 
as specified below. Any comment that is submitted will be shared with 
the other Departments. Please do not submit duplicates. All comments 
will be made available to the public. Warning: Please do not include 
any personally identifiable information (such as name, address, or 
other contact information) or confidential business information that 
you do not want publicly disclosed. All comments are posted on the 
Internet exactly as received and can be retrieved by most Internet 
search engines. No deletions, modifications, or redactions will be made 
to the comments received, as they are public records. Comments may be 
submitted anonymously.
    Comments may be submitted by one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Email: [email protected].
    Mail or Hand Delivery: Office of Health Plan Standards and 
Compliance Assistance, Employee Benefits Security Administration, Room 
N-5653, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210, Attention: Stop Loss Comments.
    Comments received will be posted without change to http://www.regulations.gov and http://www.dol.gov/ebsa, and available for 
public inspection in the Public Disclosure Room, N-1513, Employee 
Benefits Security Administration, 200 Constitution Avenue NW., 
Washington, DC 20210, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Beth Baum or Amy Turner, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Russ Weinheimer, Internal Revenue Service, Department of the 
Treasury, at (202) 622-6080; Steve Kornblit, Centers for Medicare & 
Medicaid Services (CMS), Department of Health and Human Services, at 
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws may call the EBSA Toll-Free Hotline at 1-866-444-
EBSA (3272) or visit the Department of Labor's Web site (http://www.dol.gov/ebsa). In addition, information from HHS on private health 
insurance for consumers can be found on the CMS Web site 
(www.cciio.cms.gov), and information on health reform can be found at 


I. Background

    Stop loss insurance protects against health insurance claims that 
are catastrophic or unpredictable in nature \1\ and provides coverage 
to self-insured group health plans once a certain level of risk has 
been absorbed by the plan.\2\ Stop loss protection allows an employer 
to self-insure for a set amount of claims costs, with the stop loss 
insurance covering most or all of the remainder of the claims costs 
that exceed the set amount, generally referred to as the ``attachment 
point.'' Attachment points can be either ``specific'' or ``aggregate.'' 
Specific attachment points protect the plan against a high claim for 
any one individual (e.g., an employer self-insures up to $500,000 in 
claims per year for any one enrollee and stop loss insurance covers 
claims amounts above the $500,000 attachment point).\3\ Aggregate 
attachment points define the maximum dollar amount of claims that an 
employer will pay, in total, during a specific period (e.g., an 
employer self-insures up to 125 percent of expected claims per year 
across all employees and stop loss insurance covers claims amounts 
above the 125 percent attachment point).\4\ Stop loss insurance 
policies may be purchased by an employer or by the employer's group 
health plan.

    \1\ See the Self-Insurance Institute of America Inc.'s 
definition of stop-loss insurance at: http://www.siia.org/i4a/pages/Index.cfm?pageID=4549.
    \2\ American Medical Security Inc. v. Bartlett, 111 F.3d 358, 
360, 361 (4th Cir. 1997)
    \3\ See the Self-Insurance Institute of America Inc.'s 
definition of stop-loss insurance at: http://www.siia.org/i4a/pages/Index.cfm?pageID=4549.
    \4\ Id.

    The Departments have little data on the incidence or terms of stop 
loss insurance among self-insured employers' group health plans. 
Private-sector employer sponsored health benefit plans that have 100 or 
more participants and smaller plans that hold assets in trust generally 
are required to file annual reports with the Department of Labor. These 
reports, filed on Form 5500, include some information on the plans' 
finances, including some information on any stop loss insurance 
policies held by the plans. However, the reports do not include 
information on the attachment points associated with stop loss 
insurance policies or any information on stop loss insurance policies 
held by plan sponsors rather than by plans. Additionally, plans with 
fewer than 100 participants that employers self-insure using their 
general assets (and that do not hold assets in trust) are not required 
to file Form 5500 annual reports and as a result, the Departments have 
even less information about stop loss coverage for these plans. The 
limited information on stop loss insurance policies contained in Form 
5500 is summarized in the Department of Labor's Group Health Plans 
Reports Abstract of Form 5500 Annual Reports, available at: http://www.dol.gov/ebsa/publications/form5500dataresearch.html#healthplan. The 
limited available information suggests that stop loss insurance is 
perhaps becoming more common among smaller self-insured plans but 
information is not available on the type of stop loss coverage 
purchased by plans of various sizes. More specifically, according to 
Form 5500 data, between 2000 and 2008, the percentage of group health 
plans filing a Form 5500 that reported having stop loss insurance was 
in the range of approximately 23 percent to 27 percent for self-insured 
plans and approximately 28 percent to 29 percent

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for partially-insured, partially self-insured plans.\5\

    \5\ See Department of Labor's Report to Congress: Annual Report 
on Self-Insured Group Health Plans, issued on 04/24/2012, available 
at http://www.dol.gov/ebsa/pdf/ACAReportToCongress041612.pdf.

    Unless prohibited by State insurance law, an insurer may offer stop 
loss insurance policies with attachment points set low enough such that 
the stop loss insurer assumes nearly all the insurance risk. For 
example, the attachment point could be set at $5,000 per employee, or 
$100,000 for a small group.
    Under section 514(a) of the Employee Retirement Income Security Act 
(ERISA), State laws that relate to ``employee benefit plans,'' as 
defined by ERISA section 3(3), are generally preempted. (Although ERISA 
section 514(b)(2)(A) saves State insurance laws from preemption, ERISA 
section 514(b)(2)(B) prohibits States from deeming employee benefit 
plans to be insurance companies in order to regulate them under 
insurance laws.) \6\ As a result, self-insured plans are not subject to 
State insurance laws, but insurance policies issued to those plans or 
plan sponsors, including stop loss insurance policies, can be regulated 
by States if the regulation is directed toward and affects the business 
of insurance rather than the relationship between an employee benefit 
plan and its participants.

    \6\ Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 373 n.6 
(2002) (a State law that regulates insurance--and which is otherwise 
saved from preemption--may not be applied to a self-insured ERISA 

    Employers and plans that purchase stop loss insurance generally are 
not subject to State health insurance laws including coverage laws, 
rating policies, and other State and Federal consumer protections 
applicable to health insurance, including certain patient protections 
under the Patient Protection and Affordable Care Act (Affordable Care 
Act). It has been suggested that some small employers with healthier 
employees may self-insure and purchase stop loss insurance policies 
with relatively low attachment points to avoid being subject to these 
requirements while exposing themselves to little risk.\7\ This 
practice, if widespread, could worsen the risk pool and increase 
premiums in the fully insured small group market, including in the 
Small Business Health Options Program (SHOP) Exchanges that begin in 

    \7\ Kathryn Linehan, Self-Insurance and the Potential Effects of 
Health Reform on the Small-Group Market, Issue Brief 840, National 
Health Policy Forum (December 21, 2010) available at http://www.nhpf.org/library/issue-briefs/IB840_PPACASmallGroup_12-21-10.pdf, Russell B. Korobkin, The Battle Over Self-Insured Health 
Plans, or 'One Good Loophole Deserves Another', Yale Journal of 
Health Policy, Law, and Ethics, Vol. 1, 89-136 (2005).
    \8\ A recent RAND report predicts that this effect, if any, is 
likely to be small. See http://content.healthaffairs.org/content/31/2/324.abstract?sid=412e7755-0eb9-4b79-ac32-d39e6c739d0f. See also 
Mark A. Hall, Regulating Stop-Loss Coverage May Be Needed to Deter 
Self-Insuring Small Employers From Undermining Market Reforms, 
Health Affairs, 31, no. 2 (2012): 316-323.

    In the mid-1990s, the National Association of Insurance 
Commissioners (NAIC) and several States expressed concern that the 
purchase of stop loss insurance policies with low attachment points 
made the self-insured classification a method to circumvent State 
insurance regulation. As a result, the NAIC adopted a model law (Model 
Act 92-1), which established standards for determining whether an 
insurance policy should be treated as a health insurance policy or a 
stop loss insurance policy under State law. The model law created 
minimum attachment points for stop loss insurance policies.\9\ If the 
attachment points exceeded the minimum amount, the policies would be 
treated essentially as reinsurance of a self-insured plan. If the 
attachment points were below the minimum, the policies would be 
classified as health insurance subject to State insurance regulation. 
In addition, the model law established distinctly different 
requirements for health insurance policies as opposed to stop loss 
insurance policies, including different licensing, reporting, policy 
form and solvency requirements for insurers issuing the health 
insurance policies.

    \9\ Specifically, the 1995 model law prohibited an insurer from 
issuing a stop loss insurance policy that had: (a) An annual 
attachment point for claims incurred per individual lower than $ 
20,000; and (b) an annual aggregate attachment point, for groups of 
fifty (50) or fewer, that was lower than the greater of: (i) $4,000 
times the number of group members; (ii) 120 percent of expected 
claims; or (iii) $ 20,000. For groups of fifty-one or more, it 
prohibited an annual aggregate attachment point that was lower than 
110 percent of expected claims.

    Other interested stakeholders are also monitoring the market for 
stop loss coverage with low attachment points.\10\

    \10\ For example, Hall has cautioned that aspects of the 
Affordable Care Act could motivate some small businesses with 
younger, healthier employees to self-insure and buy relatively 
comprehensive stop loss coverage, and that this might increase 
premiums for small businesses that purchase insurance. See Mark A. 
Hall, Regulating Stop-Loss Coverage May Be Needed to Deter Self-
Insuring Small Employers From Undermining Market Reforms, Health 
Affairs, 31, no. 2 (2012): 316-323. Eibner et al. generally conclude 
that self-insurance will have little effect on premiums for small 
group coverage, but suggest that this conclusion might change if 
affordable, attractive stop-loss policies become more available. See 
Christine Eibner, Carter C. Price, Raffaele Vardavas, Amando Cordova 
and Federico Girosi, Small Firms' Actions in Two Areas, And Exchange 
Premium and Enrollment Impact, Health Affairs, 31, no. 2, (2012): 

II. Solicitation of Comments

    The Departments are requesting comments to contribute to the 
Departments' understanding of the current and emerging market for stop 
loss products, both generally and with respect to the following 
specific areas:
    1. How common is the use of stop loss insurance in connection with 
self-insured arrangements? Does the usage vary (and, if so, how) based 
on the size of the underlying arrangement or based on other factors? 
How many individuals, if known, are covered under stop loss insurance 
(either nationally or on a state-specific basis)? What are the trends? 
Are past trends expected to be predictive of future trends? Is the 
Affordable Care Act expected to affect these trends (and, if so, how)?
    2. What are common attachment points for stop loss insurance 
policies, and what factors are used to determine these attachment 
points? What are common attachment points by employer size (e.g., for 
plans with fewer than 50, between 50 and 100, or between 100 and 250 
employees, and how do these compare to attachment points used by larger 
plans)? What are the lowest attachment points that are available? What 
are the trends?
    3. Are employee-level (``specific'') attachment points more common, 
or are group-level (``aggregate'') attachment points more common? What 
are the trends? What are the common attachment points for employee-
level and group-level policies?
    4. How do insurers work with small employers to integrate stop loss 
insurance protection with self-insured group health plans? What kinds 
of options are generally made available? Are policies customized to 
meet the needs of different employers? How are the attachment points 
for a stop loss policy determined for an employer? Do self-insured 
group health plans purchase stop loss insurance anticipating that they 
will purchase it every year?
    5. For a given attachment point, what percentage of total medical 
costs incurred by the employees is typically paid for by the employer 
and what percentage is typically paid for by the stop loss insurance 
policy? How much do the relative percentages vary for different 
attachment points? What are the loss ratios associated with stop loss 
insurance policies?

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    6. What are the administrative costs to employers related to stop 
loss insurance purchased for the employers' self-insured group health 
plans? How do these costs compare to the administrative costs related 
to purchasing a health insurance policy from an issuer?
    7. Is stop loss insurance more prevalent in certain industries or 
sectors? Are there any minimum employee participation requirements for 
a small employer to be offered stop loss insurance?
    8. What types of entities issue stop loss insurance? How many small 
entities \11\ issue stop loss insurance policies?

    \11\ For this purpose, a small entity is defined as (1) a 
proprietary firm meeting the size standards of the Small Business 
Administration or (2) a nonprofit organization that is not dominant 
in its field.

    9. Do stop loss issuers increase fees for groups below a certain 
size or exclude those groups? If so, how?
    10. How do stop loss insurers evaluate the plans seeking coverage 
and how is this evaluation reflected in the coverage or premiums 
offered? Does the profile of the plan have an effect on the attachment 
points available?
    11. How do States regulate stop loss insurance? In States that are 
regulating this insurance, what are the licensing processes and 
standards? Have States proposed laws, regulations, or best practices 
with regard to stop loss insurance? Do such proposals focus on 
attachment points, size of the group, percent of total claims paid by 
the stop loss insurer, or other criteria? What are the issues States 
face in regulating stop loss insurance?
    12. What effect does the availability of stop loss insurance with 
various attachment points and other particular provisions have on small 
employers' decisions to offer insurance to employees?
    13. What impact does the use of stop loss insurance by self-insured 
small employers have on the small group fully insured market?

    Signed at Washington, DC, this 25th day of April, 2012.
Victoria A. Judson,
Division Counsel/Associate Chief Counsel, Tax Exempt and Government 
Entities, Internal Revenue Service, Department of the Treasury.

    Signed at Washington, DC this 25th day of April, 2012.
George H. Bostick,
Benefits Tax Counsel, Department of the Treasury.

    Signed this 23rd day of April, 2012.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.

    Dated: April 25, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: April 25, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-10441 Filed 4-27-12; 11:15 am]