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May 2, 2016 Other Voices

CT could benefit from NY’s self-insurance restrictions

Michael W. Ferguson

Connecticut might soon be overrun by New Yorkers — and their small businesses.

On Jan. 1, the Empire State effectively prohibited small firms within its borders from providing their employees with health benefits via a popular practice called self-insurance. 

That practice is alive and well in Connecticut. Just recently, the state insurance commissioner issued improved regulations protecting firms that choose to self-insure.

That's good news not just for Connecticut's small businesses but for thousands of workers with self-insured plans. The commissioner's actions could even benefit the Connecticut economy — if they attract New York firms that have long self-insured across the border.

Today, more than 57 percent of Connecticut's private-sector workers are covered by employer-sponsored, self-insured plans. These entities pay their employees' medical expenses out of their own pockets. Instead of purchasing conventional, one-size-fits-all insurance coverage, self-insured firms can adjust their health benefits to meet the unique needs of their workers.

Self-insurance has become especially valuable in the wake of the Affordable Care Act, as the cost of traditional health plans has surged. In the past year, premiums shot up 21 percent for some individual and small-group plans in Connecticut. Businesses that self-insure can shield themselves from this volatility.

Self-insurers still have unpredictable costs to account for, though. If just one employee contracts cancer or a rare disease, for example, the astronomical medical bills that result could imperil a smaller company's finances.

To hedge against this possibility, many smaller self-insured businesses buy stop-loss insurance. Once their medical expenses per employee reach a certain level — known as the “attachment point” — the stop-loss policy kicks in and reimburses the business for any additional medical costs.

Sometimes, employers will agree to higher attachment points for their higher-risk employees in exchange for lower premiums on their stop-loss policies. That can save them real money.

Employers also then have a significant incentive to keep their staffers healthy — especially those with potentially costly medical conditions. After all, they're on the hook for a greater share, if not all, of the cost of their care.

In cases like these, self-insured businesses will offer excellent preventive care and disease-management programs to address workers' health problems early on — rather than down the line, when they may be more serious and more expensive to treat.

An employer with a diabetic employee, for instance, could create a wellness program that helps the employee manage his or her condition. The employer could pay a specialist to do monthly check-ups, hire a nutritionist to create a dietary plan, and cover all the employee's medical supplies. 

That could keep the worker healthy — and allow the company to avoid hefty, unexpected and preventable medical bills.

All in all, it's a good deal for Connecticut's job creators. If their workforces stay healthy, self-insured businesses can save big on medical expenses. In less healthy years, stop-loss insurance guarantees that the company can continue to provide great benefits without breaking the bank. 

Despite all these advantages, some states have begun to attack self-insurance by targeting the stop-loss coverage that keeps it financially feasible. 

Connecticut's neighbor to the west has pursued particularly destructive policies. New York already forbids small businesses — those with 50 or fewer full-time employees — from buying stop-loss insurance. On Jan. 1, the state expanded that definition — barring companies with up to 100 full-timers from the stop-loss market.

The self-funded benefits that many New York businesses in this latter group have been furnishing for decades became untenable overnight.

Fortunately, Connecticut has avoided New York's missteps. State Insurance Commissioner Katharine Wade recently issued a bulletin allowing self-insurers' to create more flexible health-benefits plans. Without that freedom, stop-loss insurance would become much more expensive — and potentially unaffordable.

Michael W. Ferguson is president of the Self-Insurance Institute of America.

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