SB 1431 threatens health coverage for small-business employees

California officials claim they are “full-speed ahead” in making changes that support the new federal health care law, but there’s one effort under way that should be stopped dead in its tracks.

Senate Bill 1431 unfairly targets small businesses that provide health coverage to their employees through a self-funded plan. It would impose a new set of regulations so onerous that small businesses like mine would effectively be unable to offer employee health coverage through a self-funded plan, and my workers may be added to those Americans who are uninsured.

With the goal of health reform to extend health coverage to more Americans, the loss of health coverage among Californians from this legislation would be both sad and ironic.

Simply put, in a self-funded plan, the employer is paying the health bills directly instead of paying an insurance premium. These types of plans cover three out of every five workers in the United States.

With the enormous growth in the cost of health care, paying health costs directly may sound terrifying. But doing so has proven to be very cost-competitive. In addition, our company has a lot more information about the types of health care services our work force needs and what types of programs we can put into place to help employees and their families lead healthier lives.

Of course, even in the healthiest work force, there are times when our employees need health care services. And there will be very expensive claims due to a serious accident or illness.

To keep these types of catastrophic claims from overwhelming the health plan or the business entirely, our company purchases stop-loss coverage. This coverage sets a level at which the company will no longer be required to pay the costs of a health claim and assumes all the costs beyond that point. It helps alleviate the potential risk associated with a self-funded health plan and provides the predictability I need to ensure that providing health coverage pencils out for the business.

Importantly, the level at which stop-loss coverage can kick in (the attachment point) is set in the policy between the employer and insurance company based on what makes the most sense for that work force.

Rather than allowing small businesses to make that decision, SB 1431 wants to regulate stop loss and set a minimum attachment point at an unreasonably high level. Proponents of the bill are advocating for an attachment point as high as $95,000 per claim, many times greater than any other state. In so doing, the bill would require small businesses to pay out much more in health care costs. It would also undermine the self-funding model for small employers.

If proponents are hopeful that businesses that self-fund their health plan with stop-loss coverage will instead purchase regular health insurance or participate in a new state insurance exchange, they are probably going to be disappointed. When self-insurance is taken away as an option, employers are more likely to simply drop coverage altogether, according to a report by the consulting group RAND. Setting an unreasonable attachment point for stop-loss coverage in California would likely have this effect.

Self-funding a health plan does come with some risks, but just one of many that California’s small businesses face every day. Stop-loss coverage with a reasonable attachment point helps guard against this risk and makes self-funding a viable option for health coverage for California workers.

Just as risky are attempts to overregulate California businesses so they are unable to operate efficiently and create jobs for the state. Unfortunately, there’s no insurance protection against bad legislative ideas, except that lawmakers can vote “no.”