Some employers thought self-funding was the answer to their Affordable Care Act (ACA) prayers, as self-funding allows an employer to avoid some ACA taxes and mandates that apply to fully insured plans.  However, California Governor Jerry Brown recently signed a law prohibiting stop-loss insurers from issuing policies with specific deductibles below $35,000.00 for employers with 1 to 100 employees.

Small employers, often those most vulnerable to health insurance rate increases, have looked to self-funding to rein in increasing health costs for employees.  Self-funding allows an employer to assume the risk for the health of their employees, and purchase stop-loss coverage that will pay for health costs once they reach a certain level.  After the passage of this law in California, a small employer would be liable for up to $35,000 a year for employees’ health costs, and the stop-loss insurance would pay any claims in excess of that amount.

Additionally, the law states that aggregate attachment points cannot be less than either:

  • $5,000 x total number of group members
  • 120% of expected claims, or
  • $35,000

On January 1, 2016 the minimum attachment point increases to $40,000.

In addition, California has seen a 6% increase in workers compensation claims during the first half of 2013.  The increase is most noticeable in industries able to staff part-time workers.  Some large employers seeking to limit their responsibility to provide health coverage for full-time employees are hiring two part-time workers to do the job of, formerly, one full-time employee.  These workers may not be as highly trained as the full-time employee, making them more prone to work injury.

This increase in part-time employees has not increased payroll, which is how workers compensation insurance is underwritten.  Thus, there are more bodies to insure, but the same amount of money with which to insure them.

The way employers and legislators choose to react to the ACA has far reaching consequences.  For now, only California has undergone these specific changes, but it is not unreasonable to assume that other democratic states may adopt a similar law for stop-loss insurers, and employers may face increased workers compensation exposure if they hire more part-time employees.