Minimum weighed on self-insured medical benefits Md. insurance chief holds hearings today on proposed limit

90,000 firms may be affected

Companies' liability would be $20,000 for each employee

November 13, 1995|By M. William Salganik | M. William Salganik,SUN STAFF

The state insurance commissioner will hear arguments today on how much risk companies that self-insure health benefits should bear.

The goal of new regulations, Insurance Commissioner Dwight K. Bartlett III says, is to make sure companies that claim to be self-insured -- thereby avoiding the state's premium tax and state mandated coverage -- really are assuming some risk.

But some employers and benefits administrators are complaining about the proposed regulations, which would set a minimum self-insurance requirement for the first time.

That level -- $20,000 annually for each employee -- is too high, they say, and would force some small and medium-sized employers to reduce benefits for thousands of Maryland workers.

Self-insured companies -- there is no firm count, but some insurance industry estimates place the number at 90,000 in Maryland -- don't buy conventional health insurance for their employees.

Instead, they pay covered health costs themselves, generally through administrative firms.

But to protect themselves against catastrophic costs, virtually all self-insured companies buy "stop-loss" insurance policies to pay the highest claims and all claims above a set aggregate level.

In regulations scheduled to go into effect with policies written after Jan. 1, Mr. Bartlett is proposing to set an annual minimum of $20,000 per worker for stop-loss policies. Self-insured companies would be responsible for paying claims up to that point.

Self-insured employers do not have to pay a 2 percent state premium tax and do not have to offer the full range of benefits the state requires for health insurance.

Some of those requirements for firms with less than 50 employees, including in-vitro fertilization and mental health coverage, have brought complaints from businesses who see the minimum benefits as too costly and burdensome.

"If you buy stop-loss insurance which transfers the bulk of the risk to the insurer, that's really health insurance," and the firm should not be able to skirt state regulation and the tax, Mr. Bartlett maintains.

David Randall, deputy director of the Ohio Department of Insurance, says regulators in some states have found stop-loss policies covering claims as low as $250.

Mr. Randall chaired a task force for the National Association of Insurance Commissioners. The NAIC developed the model regulations on which the Maryland regulations, including the $20,000 minimum, are based. He said that figure was based on an actuarial study.

Robert W. Erskine, vice president of Employee Security, Inc., a Columbia firm that administers self-insurance plans, agrees some regulations are needed to prevent "gaming the system" to avoid insurance minimums.

However, he complains, the $20,000 minimum is more risk than many companies are willing to assume, so it will be difficult for them to maintain self-insurance.

He said the regulations' impact would be greatest on firms with 50 to 125 employees, since smaller firms have difficulty self-insuring and larger ones can generally afford the higher risk levels.

Typically, he said, firms in the 50-125 employee range buy stop-loss policies in the $5,000 to $15,000 range.

Census bureau figures show more than 3,000 Maryland business establishments with between 50 and 100 employees.

Employers have been turning to self-insurance because it can save money. Donald Hall, president of LME Inc. in Annapolis, an engineering consultant, says his company chose self-insurance "so we're not supporting 1,600 vice presidents of the insurance company in a big building."

According to written comments submitted to the insurance commissioner, LME was able to increase benefits for its 85 employees by self-insuring while reducing costs by 30 percent.

It has a stop-loss policy for claims over $15,000, and if the company were forced to shoulder more risk, Mr. Hall says, "We'd probably have to cut out some benefits, although that would put us at a competitive disadvantage with larger firms."

Some of the written comments, and critics such as Mr. Erskine, have suggested a $10,000 limit would be fairer. "I really do have an open mind" on the limit, Mr. Bartlett said. The hearing will be at 9 a.m. today in the 11th-floor conference room at 501 St. Paul Place.

Mr. Bartlett can modify the regulations, delay their effective date or let them take effect as scheduled.

Meanwhile, one insurer that writes stop-loss policies, American Medical Security of Green Bay, Wis., has filed suit in federal court here, challenging the state's authority to issue such regulations.

AMS is represented in the case by Edward Birrane, a former state insurance commissioner.

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