Health insurance legislation pits shared risk against firms' rights

A bill pending in the General Assembly would make it more expensive for small firms to self-insure for health care but bolster the small group insurance market handled by large insurers such as CareFirst. Photo by: Kenneth K. Lam/Baltimore Sun

The ongoing health care debate over the right of individual choice versus the benefits of shared risk lies at the heart of a high-stakes tussle now playing out in Annapolis over how small businesses insure their workers.

It's part of the continuing reverberations of the federal Affordable Care Act, with leading lawmakers aiming to hold down rates in the group plans for businesses promoted under the law, and a broad collection of interest groups trying to preserve companies' option to insure themselves.


In the lawmakers' corner are such insurance companies as CareFirst BlueCross BlueShield and Kaiser Permanente. Opposing them are the National Federation of Independent Business and multiple groups with an interest in preserving a form of insurance called "stop-loss."

About the only thing the groups agree on is that the stakes are high. And even as both sides argue their case in public, they're negotiating behind closed doors about how to write the rules for providing full health insurance coverage for companies with fewer than 100 employees — the small-group market.


In the small-group market, which will expand under health care reform, risk is pooled among a wide variety of companies — some with a relatively healthy workforce and some with employees who have more health problems.

Del. Shane Pendergrass, the House sponsor of the stop-loss insurance bill at the center of the debate, said the measure is an attempt to preserve that balance of companies in the small-group plans.

"It is the goal of everyone who is involved in this to make sure we have a healthy small-group pool in the state of Maryland for the long term," said Pendergrass, a Howard County Democrat and vice chairwoman of the House health committee.

To do that, Pendergrass and Senate Finance Committee Chairman Thomas M. Middleton are proposing to make it much more expensive for small businesses to go the route of self-insurance — a route generally open only to those with healthy employees.

Their concern is that if too many potential members of the small-group market self-insure, taking robust young workers out of the pool, rates will skyrocket for the remaining businesses with less favorable risk profiles.

"The rate will become so unaffordable," said Middleton, a Charles County Democrat.

Under self-insurance, an employer puts aside a pot of money to cover employees' medical bills.

A cornerstone of self-insurance is stop-loss insurance. Because no employer wants to take on the unlimited risk that catastrophic illness or injury to even a single employee can bring, self-insuring businesses buy policies that in effect stop their losses at a certain point. Typically, those policies carry protection against unforeseen expenses to both individual employees and to the group as a whole.


Long before the Affordable Care Act, about 20 years ago, Maryland sought to protect the small-group market risk pool by enacting a law saying the point at which stop-loss kicks in could be no lower than $10,000 per individual employee.

The legislation submitted by Pendergrass and Middleton would raise that limit to $40,000, making self-insurance a more risky and less attractive option for businesses. At the same time, they say, the insurance exchanges where companies can go to buy small-group policies would become more diverse and less expensive.

"What this means is that if you self-insure, you would be out of pocket more money before stop-loss kicks in," Pendergrass said. "What this is about is keeping the small group health plans healthy."

Pendergrass said it's important for the legislature to act now because a provision of the health care law will kick in next year changing the definition of "small group," now two to 50 employees, to two to 100. If lawmakers don't enact a bill, she said, the small-group market exchange could turn into the equivalent of the Maryland Auto Insurance Fund — ensuring those at highest risk at high prices.

Opponents, including companies that write stop-loss policies, insist the fix is unnecessary and the proposed solution unjust to employers.

"We believe that a self-funding solution with stop-loss can help them offer a cost-effective solution to offering employees health benefits," said Alexis McHale-Monaco, product marketing director for stop-loss at Sun Life. "From a Sun Life perspective, our concern is our employers and making sure they have flexibility and choices."


McHale-Monaco said other states have increased their stop-loss limits to account for inflation but that only a handful have gone as high as $40,000. She said most have limits of either $10,000 or $20,000.

Maryland Insurance Commissioner Alfred W. Redmer Jr. said the bill's sponsors have agreed to an amendment that would bring the limit down to $22,500. Pendergrass said she could not confirm that.

Nevertheless, Jessica Cooper, executive director of the Maryland branch of the National Federation of Independent Business, said the legislation limits the options for small businesses in a way that it would not for larger companies.

Cooper also disputed the premise that there would be a rush to self-insure when the Affordable Care Act provisions kick in.

"There are no mass movements to self-fund," she said. "Only 4 percent of our members are self-funding as an option."

Pendergrass said it would be a mistake to wait until there is an exodus to self-insurance.


"We think it's pretty important to get ahead of the market," she said.

Middleton said many small businesses would benefit from the legislation while others would not. For example, an established business with many older employees would benefit through lower prices in the group pool, while a high-tech startup such as a software company with many younger employees might find it more expensive to self-insure.

Supporters of the bill warn that the small company that can afford to self-insure this year might find that it needs an affordable group market pool down the road if its workforce has a few unexpected health setbacks.

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"One or two cases, and you can get blown away," said Chet Burrell, CEO of CareFirst BlueCross BlueShield, that state's largest health insurer and a big player in the small-group market.

Burrell, a leading supporter of the bill, said that while his company has a stake in the health of the small-group market, it wouldn't earn more if the bill is passed because it is a nonprofit. He said the bill is not an effort to run the stop-loss insurers out of business and that they would still have a role in the insurance system.

"It has everything to do with keeping a viable pool together," Burrell said. "Without this bill, that's where things are headed."


While neither side was publicly backing down as of late last week, stakeholders on both sides met Wednesday night behind closed doors to discuss a possible compromise, including the possible move to a $22,500 limit.

Redmer, a participant in the talks, said he has briefed Gov. Larry Hogan on the issue. The insurance commissioner said the governor wants to see how the negotiations play out but is inclined to sign a compromise bill.

"He didn't have any heartburn about it one way or the other," Redmer said.