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Small Business & Stop Loss Coverage


Many small businesses -- those with 50 or fewer employees -- don't directly pay the health care expenses of their employees -- it's too expensive and risky. Instead, small companies that offer employee health coverage purchase group policies from health carriers, allowing the insurer to assume the risk.

To change that outlook, some insurers and their brokers are trying to change that, wooing smaller companies with 50 or fewer employees into the universe of self-insured businesses by offering ancillary stop-loss policies, which allows those business owners to sidestep federal health care reform measures and could result in higher health care premiums.

Insurers have found a way around the PPACA, especially in states like Pennsylvania where the stop-loss market is largely unregulated, said Timothy Jost, health law professor at the Washington and Lee University law school.

PPACA and Stop Loss

However, many of the PPACA's new requirements apply to self-insured plans, as well as to plans funded by insurance products. For example, the new restrictions on lifetime and annual limits, waiting periods, and pre-existing condition limitations apply to both self-insured and fully insured plans, as do the new requirements expanding coverage for adult dependent children.

Given that, however, self-funding may provide some cost savings as the health insurance landscape alters and puts more emphasis on business efforts to realize health insurance savings.

But, self-funding is not a one size fits all solution. According to Self-funding Magazine, self-funding health insurance generally makes sense for businesses with more than 100 employees and also allows them some additional control and decision-making on coverage options.

The Health Insurance Landscape

In the world of employer-provided health insurance, there are generally two types of companies -- those big enough, with enough risk predictability, to insure themselves and pay their own claims; and those smaller and midsized companies that buy coverage from commercial carriers.

The two types are known as the "self-insured" and the "fully insured," and historically, smaller companies gravitate toward the second classification. They don't insure themselves -- essentially, this means setting aside money to cover their employees' health claims -- because, with too few employees, a couple of major illnesses or surgeries could be financially calamitous.

The Self-Insurance Decision

Self-insurance becomes possible when a company also buys "stop-loss" insurance. In this case, stop-loss is an insurance policy that pays out in the event that a company's health claims exceed what has been set aside to pay for benefits in a given year.

Self-funding can save the business a substantial amount of money in some cases. Some estimates say that a business could save as much as 25 percent by using this method. To save money, it helps tremendously if the workforce is relatively healthy. Therefore, if your business has a majority of older workers, this may not work out as well. When you utilize this type of insurance, you are not going to pay any health insurance premiums. You will have to pay something for the stoploss insurance, but it is going to be very affordable compared to regular health insurance.

Another benefit of this type of health insurance is that the employer gets to decide what type of services are going to be covered. The employer does not have to rely on an insurance company to tell them what is going to be covered and what is not. For example, the employer will get to choose whether employees get preventive care such as mammograms or checkups. Not having to answer to someone else in regard to healthcare can be a big benefit for many business owners.

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