42 The Self-Insurer | www.sipconline.net

Self-Insurance/ART Marketplace Continues to Face Legislative/Regulatory Headwinds in the New Year

Organizations involved in the self-insurance/alternative risk transfer marketplace are getting back to business after the holiday break. While they are focused on managing risk for the new year, regulatory headwinds continue to blow, generated by certain policy-makers who

do not fully recognize the importance of self-insurance solutions for employers, Taft-Hartley plans and public section entities.

While no one knows exactly how legislative/regulatory developments will play out during 2015, we can certainly identify some areas to watch. With that disclaimer noted, let’s explore some anticipated storylines for the next 12 months.

Stop-Loss Insurance RegulationState regulation of stop-loss insurance is expected to continue to be a hot area

as Legislatures come back into session over the next couple months. Despite strong opposition by SIIA and other industry stakeholders, restrictive stop-loss laws have been enacted in California and the District of Columbia over the past two years. Other efforts have been beaten back.

One development that could add fuel to this fire is that the U.S. Department Labor of issued a Technical Release on November 6, 2014 expressing the opinion that states should not be concerned that stop-loss regulation restricting policies based on attachment points would be preempted by the Employee Retirement Income Security Act (ERISA). The full language of DOL’s conclusion follows:

SIIA views this unsolicited Technical Release as explicit encouragement for states to regulate more in this area to make it increasingly difficult for smaller and mid-sized employers to operate self-insured health plans. That said, we reject the conclusion that the ERISA preemption question is settled. In fact, the closest legal precedent (AMS v Bartlett) concluded that states cannot classify stop-loss insurance as health insurance regardless of attachment point levels.

In any event, watch for additional states to decide to target stop-loss insurance for the purpose of “protecting their insurance exchange from adverse selection,” a favorite canard of industry critics.

But the stop-loss regulatory threat is not confined to the state level. There is ongoing concern that federal regulators will redefine health insurance coverage

SIIA President’s MessageWritten by Michael W. Ferguson

The Department of Labor, which is the agency primarily tasked with administration of Title I

of ERISA,(9) takes the view that States may regulate insurance policies issued to plans or plan

sponsors, including stop-loss insurance policies, if the law regulates the insurance company

and the business of insurance.(10) Insurance regulation of group health insurance clearly limits

insurance policy choices available to third parties, including employee benefit plans. Insurance

regulation of stop-loss insurance can have a similar consequence without ERISA preempting the

insurance regulation. Thus, a State law that prohibits insurers from issuing stop-loss contracts

with attachment points below specified levels would not, in the Department’s view, be preempted by

ERISA. Thus far, about ten States have enacted laws using the same approach as the NAIC model.

The Department is not aware of any challenges to such laws based on ERISA preemption.

January 2015 | The Self-Insurer 43

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SIIA President’s Message

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44 The Self-Insurer | www.sipconline.net44 The Self-Insurer | www.sipconline.net

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to include stop-loss insurance with “low” attachment points. This would have a significant adverse affect on the self-insurance marketplace nationwide.

This threat prompted the introduction of the Self-Insurance Protection Act (SIPA) last year, which was intended to close off regulatory discretion in this area. SIIA expects that the legislation will be reintroduced soon for the new Congress to consider, so watch for this announcement in the coming weeks.

Erosion of ERISA Preemption

While efforts to more tightly regulate stop-loss insurance have and will continue to be flashpoints for industry stakeholders and regulators, there has been a slow burn taking place related to attacks on ERISA preemption.

Since the passage of the landmark law back in 1974, states have periodically tested the statute’s preemption provision by attempting enact laws that affect self-insured plan sponsors in various ways. Many of such laws have been challenged in federal court and the results have been mixed.

But more recently, there has been an uptick in state regulatory activity around the edges of ERISA preemption – poking and prodding how far they can go without judicial pushback. And as noted previously, even the Department of Labor is now encouraging such provocative actions.

SIIA has been engaged high stakes litigation against the state of Michigan in response to it Health Claims Assessment Act, with an appeal to U.S. Supreme Court filed just last month (SIIA v. Snyder).

The association also recently partnered with the National Association of Subrogation Professionals (NASP) to request that the U.S. Supreme Court hear an appeal of an Appellate Court ruling that would allow state anti-subrogation laws to trump the ability of self-insured employers to enforce clear plan language.

While these and other current ERISA preemption cases are clearly important in response to existing state statutes, the importance is also of a prospective nature as well, as additional states may consider

additional opportunities to insert their noses under the regulatory tent. NOTE: For a deeper on current ERISA preemption litigation, please read the article on page 4 authored by Chris Aguilar and Ron Peck from the Phia Group.

State AssessmentsWhile the closure of state high risk

pools post-ACA is relieving our stop-loss carrier members of assessments to support these pools, don’t look now but new assessments are on the horizon – this time to support state run health care exchanges.

Federal money for these exchanges has now run out and many are now desperate for additional funding sources to supplement user fees paid by participating health insurance carriers. It should be noted that exchanges run by the federal government will also face budgetary pressures, but they are not permitted to raise money through assessments.

We already know that New Mexico has signaled an interest in imposing such assessments on stop-loss carriers, while Rhode Island is looking at targeting self-insured employers directly as a source of revenue. SIIA will oppose such assessment proposals because the self-insurance marketplace derives no benefits from the exchanges. And the extent that assessments create additional administrative burdens on plan administrators, we once again may have an ERISA preemption issue.

ACA Regulatory Developments

The regulatory process continues to play out with regard to ACA implementation and there is still forthcoming guidance and rules that will affect the self-insurance marketplace. We know from past experience that often time the unexpected happens, so SIIA continues to be directly engaged with key representatives within Treasury, DOL and HHS.

One unresolved matter is the contraceptive coverage mandate rule and more specifically the “accommodation” made for non-profit religious

organizations – and not closely-held for profit corporations.

As SIIA has reported previously, this accommodation does not work in the real word, which will likely result in many religious organizations dropping their self-insured plans. This may now also be an issue outside this relatively small market niche so the association continues to push for a regulatory fix.

Enterprise Risk CaptivesOn the captive insurance front, the

main area of interest for SIIA in 2015 will be Enterprise Risk Captives in the context of potential tax reform legislation. These are small captive insurance companies that take the 831(b) tax election are viewed by some policy-makers as tax shelters despite their legitimate business purposes.

The association has therefore initiated an educational outreach campaign to make sure congressional staffers and federal regulators understand how important these captive programs are to thousands of smaller and mid-sized businesses throughout country so that the current tax treatment is not affected, should corporate tax reform legislation start to gain momentum in the new Congress.

SIG RegulationFinally, SIIA has will continue to

monitor the regulatory environment for self-insured group self-insured workers’ compensation funds (SIGs). Since the failure of several SIGs in New York two years ago, some states have signaled an interest to close down SIGs through more restrictive regulation. California has already come close through higher collateral requirements enacted last year.

Stay TunedAs pointed out at the beginning of

this article, it is impossible to predict exactly what the new year has in store for the self-insurance/ART marketplace in terms of legislative/regulatory obstacles, so be sure to stay tuned for exclusive SIIA reporting – and perhaps more importantly, how your company the help the cause. ■