Md. again attacks bid to evade health laws

It says companies self-insure to avoid required benefits


July 22, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

The agency that oversees Maryland's insurance industry said yesterday that it had begun enforcing a state law barring the sale of certain employee-insurance policies it claims are aimed at evading required health benefits.

Insurance Commissioner Steven B. Larsen said his office issued a cease-and-desist order Tuesday against United Wisconsin Life Insurance Co. of Green Bay, ordering it to not to sell so-called stop-loss coverage for medical claims under $10,000.

Stop-loss policies typically are purchased by self-insured employers -- those that pay their employees' medical costs themselves rather than buy health insurance -- to protect against catastrophically high claims.

Under federal law, companies that self-insure are exempt from state regulation.

However, state officials have warned that stop-loss insurance could be exploited by companies looking to get around Maryland regulations passed in 1993 that require specified benefits.

The state was concerned that by purchasing stop-loss insurance for small, noncatastrophic claims, a company could claim the immunities of self-insurance while eliminating many of the risks.

"These policies severely undermine the reforms the state put into place in 1993," said Larsen. "When you only have to bear a $500 loss on a claim, that's not self-insurance."

To prevent excessively low stop-loss insurance claims, the state issued regulations in December 1995 that prohibited companies from buying insurance to cover claims of less than $10,000 per employee.

The regulations were challenged by a stop-loss insurer and a group of small employers, and in February 1996 a federal court ruled that the state had gone too far. The court found that the regulations conflicted with the federal Employee Retirement Income Security Act (ERISA), which bars states from regulating self-insured plans.

On June 22, 1998, the U.S. Supreme Court rejected Maryland's case, refusing to hear the state's appeal.

The Maryland legislature this year passed a law that once again sought to restrict stop-loss insurance.

Critics say state officials are violating federal court orders.

"If they are going ahead with that law, it's just as illegal as the first attempt was," said Robert W. Erskine, vice president of Employee Security Inc., a Columbia insurance and benefits company. "They are pre-empted by ERISA, bottom line. Employers who self-insure answer to only one legal body. That's the federal government."

Larsen, the insurance commissioner, said the new law complies with ERISA by punishing the insurer who issues an illegal stop-loss policy, not the employer who purchases it.

"We have kept our focus on what the federal policy says we can focus on, which is the insurance company," Larsen said.

Edward J. Birrane, lead attorney for the companies that challenged the initial state rule and a former Maryland insurance commissioner, dismissed that distinction.

"In my judgment, the law does not regulate the business of insurance. It tries to deprive employers of insurance which employers need for catastrophic losses."

Cliff Bowers, a spokesman for American Medical Security Group Inc., a Green Bay holding company that includes United Wisconsin, said his organization is withholding judgment on Maryland's action.

"We have been waiting to see the effect of this legislation on our business. Until it demonstrates itself, we'll just have to wait and see," he said.

Pub Date: 7/22/99

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