Article is by Erik Engquist, as seen in Crain’s New York Business
Fears of an insurance death spiral are misplaced, according to industry insiders fighting to preserve stop-loss policies for companies that self-insure.
The Assembly and the Cuomo administration have concerns that letting small businesses self-fund—that is, pay their workers’ health-care bills directly—depletes the risk pool and leads to an insurance death spiral.
In that scenario, known as “adverse selection,” small companies with relatively healthy employees would self-fund, while those with sickly or oft-injured workers would choose regular insurance policies. The latter group would run up huge medical bills, and insurers would respond by raising premiums, causing employers with healthy staffs to drop out. The downward spiral would accelerate until the risk pool was uninsurable.
But in reality, that doesn’t happen, said Cigna’s director of state government affairs, Patrick Gillespie. Cigna’s internal studies determined that employees’ medical costs are about equal whether their companies self-fund or use standard insurance.
“We found the risks to be the same,” he said. “No material difference.”
If small businesses were allowed to keep self-funding, said Mr. Gillespie, “we don’t believe this will in any way harm the small-group risk pool.” The state Department of Financial Services is doing its own research on the issue.
Bit of the Cuomo administration and state Assembly cannot be convinced, workers at thousands of small businesses face “sticker shock” because their employers would have to change health care plans, another Cigna executive argues in a Crain’s op-ed.
The author, Scott Evelyn, the insurer’s tri-state general manager, and others in his industry are pushing Albany to pass bills that would allow businesses with 51 to 100 employees to continue purchasing stop-loss insurance, which is essential for companies that self-fund their workers’ health benefits. On Jan. 1, because of a clause in the Affordable Care Act, those midsize employers will be roped into New York’s 23-year-old ban on stop-loss insurance for businesses with two to 50 workers. The pending bills would prevent that.
But while the Senate version of the legislation is poised to pass, the Assembly’s has been bogged down in the chamber’s Insurance Committee for nearly four months. This year’s legislative session is scheduled to end June 17, and insurance companies are getting nervous that the measure will die.
Some business owners self-fund because they think their workers are less likely to get sick or injured, but in reality, the savings in self-funding comes from not paying as much for a health insurer’s administrative costs and profit, which can represent up to 20% of premium costs in a standard policy.
Companies that self-fund typically still use insurers to run their self-funded plans, but can bargain down the cost. “Our margin to administer those claims is a lot less than 20%, and it’s negotiable,” one insurance industry insider said. “There’s no guaranteed 20% margin, unlike in the insured world.”