Last month, the Mayor of the District of Columbia signed into law The Federal Health Reform Implementation and Omnibus Amendment Act. This law limits certain employers in the District from purchasing stop loss insurance. After studying this law and speaking with representatives from DC Government, our Regulatory Affairs Practice confirmed the impact:
- Beginning in 2016, the law essentially bans employers with less than 101 employees from self-funding their health plan
- Beginning at policy renewal in 2015, the ban impacts employers with less than 51 employees
While few employers with less than 51 employees currently self-fund their health plan, many employers with 51 – 100 employees currently self-fund to enjoy these benefits:
- Reduced employer costs and increased employee compensation through good stewardship of the plan
- Reduced state and federal premium taxation
- Plan design flexibility
- Cash flow advantages
- Exemption from the Affordable Care Act (ACA) Fair Health Insurance Premium Rules
- Ability to offer coverage outside of the DC ACA Exchange (DC Health Link)
Through proper plan management, engaging wellness initiatives, reduced taxation, & plan design flexibility, it was not uncommon, even prior to the ACA, for an employer with, for example, 75 enrolled employees, to achieve 20% year over year average savings via self-funding (as compared to purchasing a fully insured policy). Under this law, these employers and their employees are now facing a perfect storm come 2016:
- Loss of their self-funded plan
- Financial impact of the ACA Fair Health Insurance Premium Rules
- Loss of access to the open fully insured market – fully insured policies will only be available for purchase via DC Health Link
The financial impact could be staggering for certain employers and their employees. For example, if fully insured premiums rise by 25% to accommodate the ACA Fair Health Insurance Premium Rules and the existing 20% savings from self-funding is lost, a 45% increase in health plan costs could be realized. Much of this increase could be passed along to employees, reducing their Total Compensation via increased payroll withholdings and increased deductibles and copayments.
However, the impact extends beyond employers that currently self-fund their health plans. Because of the financial impact of the ACA Fair Health Insurance Premium Rules, many employers across the country are planning on switching over to self-funding in 2016. For those headquartered in DC, this option has now vaporized.
Importantly, this law impacts not only traditional self-funded products but also certain hybrid products that are built on a self-funded contract. Two examples are:
Further Considerations & Speculations:
- In future years, will DC extend this ban to even larger employers?
- Will the financial impact of this law cause certain employers to relocate a few miles north or south (i.e. to Maryland or Virginia)?
- Will other states in our region implement similar bans?
The path several other states took many years ago was regulating the minimum individual stop loss level. For example, the minimum amount in Maryland is $10,000 and the minimum amount in New Jersey is $20,000. Speculating, I could envision these amounts increasing in certain states but don’t foresee outright bans.
- Would DC have implemented this ban if they had not set-up their own ACA Exchange?
- Will Congress evaluate this law?
Thank you for reading this post. We’ll continue to monitor and evaluate the impact of this law in the weeks and months ahead. If you have questions about the impact to your organization and your employees, we’re here to help. Please consider subscribing for updates via the upper right hand section.
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