25788 Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Notices 

1See the Self-Insurance Institute of America Inc.’s 

definition of stop-loss insurance at: http:// 

www.siia.org/i4a/pages/Index.cfm?pageID=4549. 

2American Medical Security Inc. v. Bartlett, 111 

F.3d 358, 360, 361 (4th Cir. 1997) 

3See the Self-Insurance Institute of America Inc.’s 

definition of stop-loss insurance at: http:// 

www.siia.org/i4a/pages/Index.cfm?pageID=4549. 

4 Id. 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

[CMS–9967–NC] 

Request for Information Regarding 

Stop Loss Insurance 

AGENCIES: Internal Revenue Service, 

Department of the Treasury; Employee 

Benefits Security Administration, 

Department of Labor; Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services. 

ACTION: Request for information. 

SUMMARY: This document is a request for 

information regarding the use of stop 

loss insurance by group health plans 

and their plan sponsors, with a focus on 

the prevalence and consequences of 

stop loss insurance at low attachment 

points. Given the limited nature of data 

available, the Departments of Labor, 

Health and Human Services (HHS), and 

the Treasury (collectively, the 

Departments) invite public comments 

via this request for information. 

DATES: Comments must be submitted on 

or before July 2, 2012. 

ADDRESSES: Written comments may be 

submitted to the Department of Labor as 

specified below. Any comment that is 

submitted will be shared with the other 

Departments. Please do not submit 

duplicates. All comments will be made 

available to the public. Warning: Please 

do not include any personally 

identifiable information (such as name, 

address, or other contact information) or 

confidential business information that 

you do not want publicly disclosed. All 

comments are posted on the Internet 

exactly as received and can be retrieved 

by most Internet search engines. No 

deletions, modifications, or redactions 

will be made to the comments received, 

as they are public records. Comments 

may be submitted anonymously. 

Comments may be submitted by one 

of the following methods: 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Email: E-OHPSCASTOPLOSS.EBSA@dol.gov. 

Mail or Hand Delivery: Office of 

Health Plan Standards and Compliance 

Assistance, Employee Benefits Security 

Administration, Room N–5653, U.S. 

Department of Labor, 200 Constitution 

Avenue NW., Washington, DC 20210, 

Attention: Stop Loss Comments. 

Comments received will be posted 

without change to http:// 

www.regulations.gov and http:// 

www.dol.gov/ebsa, and available for 

public inspection in the Public 

Disclosure Room, N–1513, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW., Washington, 

DC 20210, including any personal 

information provided. 

FOR FURTHER INFORMATION CONTACT: Beth 

Baum or Amy Turner, Employee 

Benefits Security Administration, 

Department of Labor, at (202) 693–8335; 

Russ Weinheimer, Internal Revenue 

Service, Department of the Treasury, at 

(202) 622–6080; Steve Kornblit, Centers 

for Medicare & Medicaid Services 

(CMS), Department of Health and 

Human Services, at (410)786–1565. 

Customer Service Information: 

Individuals interested in obtaining 

information from the Department of 

Labor concerning employment-based 

health coverage laws may call the EBSA 

Toll-Free Hotline at 1–866–444–EBSA 

(3272) or visit the Department of Labor’s 

Web site (http://www.dol.gov/ebsa). In 

addition, information from HHS on 

private health insurance for consumers 

can be found on the CMS Web site 

(www.cciio.cms.gov), and information 

on health reform can be found at 

http://www.HealthCare.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Stop loss insurance protects against 

health insurance claims that are 

catastrophic or unpredictable in nature 1

and provides coverage to self-insured 

group health plans once a certain level 

of risk has been absorbed by the plan.2

Stop loss protection allows an employer 

to self-insure for a set amount of claims 

costs, with the stop loss insurance 

covering most or all of the remainder of 

the claims costs that exceed the set 

amount, generally referred to as the 

‘‘attachment point.’’ Attachment points 

can be either ‘‘specific’’ or ‘‘aggregate.’’ 

Specific attachment points protect the 

plan against a high claim for any one 

individual (e.g., an employer selfinsures up to $500,000 in claims per 

year for any one enrollee and stop loss 

insurance covers claims amounts above 

the $500,000 attachment point).3

Aggregate attachment points define the 

maximum dollar amount of claims that 

an employer will pay, in total, during a 

specific period (e.g., an employer selfinsures up to 125 percent of expected 

claims per year across all employees 

and stop loss insurance covers claims 

amounts above the 125 percent 

attachment point).4 Stop loss insurance 

policies may be purchased by an 

employer or by the employer’s group 

health plan. 

The Departments have little data on 

the incidence or terms of stop loss 

insurance among self-insured 

employers’ group health plans. Privatesector employer sponsored health 

benefit plans that have 100 or more 

participants and smaller plans that hold 

assets in trust generally are required to 

file annual reports with the Department 

of Labor. These reports, filed on Form 

5500, include some information on the 

plans’ finances, including some 

information on any stop loss insurance 

policies held by the plans. However, the 

reports do not include information on 

the attachment points associated with 

stop loss insurance policies or any 

information on stop loss insurance 

policies held by plan sponsors rather 

than by plans. Additionally, plans with 

fewer than 100 participants that 

employers self-insure using their 

general assets (and that do not hold 

assets in trust) are not required to file 

Form 5500 annual reports and as a 

result, the Departments have even less 

information about stop loss coverage for 

these plans. The limited information on 

stop loss insurance policies contained 

in Form 5500 is summarized in the 

Department of Labor’s Group Health 

Plans Reports Abstract of Form 5500 

Annual Reports, available at: http:// 

www.dol.gov/ebsa/publications/ 

form5500dataresearch.html#healthplan. 

The limited available information 

suggests that stop loss insurance is 

perhaps becoming more common among 

smaller self-insured plans but 

information is not available on the type 

of stop loss coverage purchased by plans 

of various sizes. More specifically, 

according to Form 5500 data, between 

2000 and 2008, the percentage of group 

health plans filing a Form 5500 that 

reported having stop loss insurance was 

in the range of approximately 23 percent 

to 27 percent for self-insured plans and 

approximately 28 percent to 29 percent 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Notices 25789 

5See Department of Labor’s Report to Congress: 

Annual Report on Self-Insured Group Health Plans, 

issued on 04/24/2012, available at http:// 

www.dol.gov/ebsa/pdf/ 

ACAReportToCongress041612.pdf. 

6Rush Prudential HMO, Inc. v. Moran, 536 U.S. 

355, 373 n.6 (2002) (a State law that regulates 

insurance—and which is otherwise saved from 

preemption—may not be applied to a self-insured 

ERISA plan). 

7 Kathryn Linehan, Self-Insurance and the 

Potential Effects of Health Reform on the SmallGroup Market, Issue Brief 840, National Health 

Policy Forum (December 21, 2010) available at 

http://www.nhpf.org/library/issue-briefs/ 

IB840_PPACASmallGroup_12-21-10.pdf, Russell B. 

Korobkin, The Battle Over Self-Insured Health 

Plans, or ’One Good Loophole Deserves Another’, 

Yale Journal of Health Policy, Law, and Ethics, Vol. 

1, 89–136 (2005). 

8A recent RAND report predicts that this effect, 

if any, is likely to be small. See http:// 

content.healthaffairs.org/content/31/2/ 

324.abstract?sid=412e7755-0eb9-4b79-ac32- 

d39e6c739d0f. See also Mark A. Hall, Regulating 

Stop-Loss Coverage May Be Needed to Deter SelfInsuring Small Employers From Undermining 

Market Reforms, Health Affairs, 31, no. 2 (2012): 

316–323. 

9Specifically, the 1995 model law prohibited an 

insurer from issuing a stop loss insurance policy 

that had: (a) An annual attachment point for claims 

incurred per individual lower than $ 20,000; and 

(b) an annual aggregate attachment point, for groups 

of fifty (50) or fewer, that was lower than the greater 

of: (i) $4,000 times the number of group members; 

(ii) 120 percent of expected claims; or (iii) $ 20,000. 

For groups of fifty-one or more, it prohibited an 

annual aggregate attachment point that was lower 

than 110 percent of expected claims. 

10For example, Hall has cautioned that aspects of 

the Affordable Care Act could motivate some small 

businesses with younger, healthier employees to 

self-insure and buy relatively comprehensive stop 

loss coverage, and that this might increase 

premiums for small businesses that purchase 

insurance. See Mark A. Hall, Regulating Stop-Loss 

Coverage May Be Needed to Deter Self-Insuring 

Small Employers From Undermining Market 

Reforms, Health Affairs, 31, no. 2 (2012): 316–323. 

Eibner et al. generally conclude that self-insurance 

will have little effect on premiums for small group 

coverage, but suggest that this conclusion might 

change if affordable, attractive stop-loss policies 

become more available. See Christine Eibner, Carter 

C. Price, Raffaele Vardavas, Amando Cordova and 

Federico Girosi, Small Firms’ Actions in Two 

Areas, And Exchange Premium and Enrollment 

Impact, Health Affairs, 31, no. 2, (2012): 324–331. 

for partially-insured, partially selfinsured plans.5

Unless prohibited by State insurance 

law, an insurer may offer stop loss 

insurance policies with attachment 

points set low enough such that the stop 

loss insurer assumes nearly all the 

insurance risk. For example, the 

attachment point could be set at $5,000 

per employee, or $100,000 for a small 

group. 

Under section 514(a) of the Employee 

Retirement Income Security Act 

(ERISA), State laws that relate to 

‘‘employee benefit plans,’’ as defined by 

ERISA section 3(3), are generally 

preempted. (Although ERISA section 

514(b)(2)(A) saves State insurance laws 

from preemption, ERISA section 

514(b)(2)(B) prohibits States from 

deeming employee benefit plans to be 

insurance companies in order to 

regulate them under insurance laws.) 6

As a result, self-insured plans are not 

subject to State insurance laws, but 

insurance policies issued to those plans 

or plan sponsors, including stop loss 

insurance policies, can be regulated by 

States if the regulation is directed 

toward and affects the business of 

insurance rather than the relationship 

between an employee benefit plan and 

its participants. 

Employers and plans that purchase 

stop loss insurance generally are not 

subject to State health insurance laws 

including coverage laws, rating policies, 

and other State and Federal consumer 

protections applicable to health 

insurance, including certain patient 

protections under the Patient Protection 

and Affordable Care Act (Affordable 

Care Act). It has been suggested that 

some small employers with healthier 

employees may self-insure and purchase 

stop loss insurance policies with 

relatively low attachment points to 

avoid being subject to these 

requirements while exposing 

themselves to little risk.7 This practice, 

if widespread, could worsen the risk 

pool and increase premiums in the fully 

insured small group market, including 

in the Small Business Health Options 

Program (SHOP) Exchanges that begin 

in 2014.8

In the mid-1990s, the National 

Association of Insurance Commissioners 

(NAIC) and several States expressed 

concern that the purchase of stop loss 

insurance policies with low attachment 

points made the self-insured 

classification a method to circumvent 

State insurance regulation. As a result, 

the NAIC adopted a model law (Model 

Act 92–1), which established standards 

for determining whether an insurance 

policy should be treated as a health 

insurance policy or a stop loss 

insurance policy under State law. The 

model law created minimum attachment 

points for stop loss insurance policies.9

If the attachment points exceeded the 

minimum amount, the policies would 

be treated essentially as reinsurance of 

a self-insured plan. If the attachment 

points were below the minimum, the 

policies would be classified as health 

insurance subject to State insurance 

regulation. In addition, the model law 

established distinctly different 

requirements for health insurance 

policies as opposed to stop loss 

insurance policies, including different 

licensing, reporting, policy form and 

solvency requirements for insurers 

issuing the health insurance policies. 

Other interested stakeholders are also 

monitoring the market for stop loss 

coverage with low attachment points.10

II. Solicitation of Comments 

The Departments are requesting 

comments to contribute to the 

Departments’ understanding of the 

current and emerging market for stop 

loss products, both generally and with 

respect to the following specific areas: 

1. How common is the use of stop loss 

insurance in connection with selfinsured arrangements? Does the usage 

vary (and, if so, how) based on the size 

of the underlying arrangement or based 

on other factors? How many 

individuals, if known, are covered 

under stop loss insurance (either 

nationally or on a state-specific basis)? 

What are the trends? Are past trends 

expected to be predictive of future 

trends? Is the Affordable Care Act 

expected to affect these trends (and, if 

so, how)? 

2. What are common attachment 

points for stop loss insurance policies, 

and what factors are used to determine 

these attachment points? What are 

common attachment points by employer 

size (e.g., for plans with fewer than 50, 

between 50 and 100, or between 100 

and 250 employees, and how do these 

compare to attachment points used by 

larger plans)? What are the lowest 

attachment points that are available? 

What are the trends? 

3. Are employee-level (‘‘specific’’) 

attachment points more common, or are 

group-level (‘‘aggregate’’) attachment 

points more common? What are the 

trends? What are the common 

attachment points for employee-level 

and group-level policies? 

4. How do insurers work with small 

employers to integrate stop loss 

insurance protection with self-insured 

group health plans? What kinds of 

options are generally made available? 

Are policies customized to meet the 

needs of different employers? How are 

the attachment points for a stop loss 

policy determined for an employer? Do 

self-insured group health plans 

purchase stop loss insurance 

anticipating that they will purchase it 

every year? 

5. For a given attachment point, what 

percentage of total medical costs 

incurred by the employees is typically 

paid for by the employer and what 

percentage is typically paid for by the 

stop loss insurance policy? How much 

do the relative percentages vary for 

different attachment points? What are 

the loss ratios associated with stop loss 

insurance policies? 

mstockstill on DSK4VPTVN1PROD with NOTICES

25790 Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Notices 

11For this purpose, a small entity is defined as 

(1) a proprietary firm meeting the size standards of 

the Small Business Administration or (2) a 

nonprofit organization that is not dominant in its 

field. 

6. What are the administrative costs to 

employers related to stop loss insurance 

purchased for the employers’ selfinsured group health plans? How do 

these costs compare to the 

administrative costs related to 

purchasing a health insurance policy 

from an issuer? 

7. Is stop loss insurance more 

prevalent in certain industries or 

sectors? Are there any minimum 

employee participation requirements for 

a small employer to be offered stop loss 

insurance? 

8. What types of entities issue stop 

loss insurance? How many small 

entities 11 issue stop loss insurance 

policies? 

9. Do stop loss issuers increase fees 

for groups below a certain size or 

exclude those groups? If so, how? 

10. How do stop loss insurers evaluate 

the plans seeking coverage and how is 

this evaluation reflected in the coverage 

or premiums offered? Does the profile of 

the plan have an effect on the 

attachment points available? 

11. How do States regulate stop loss 

insurance? In States that are regulating 

this insurance, what are the licensing 

processes and standards? Have States 

proposed laws, regulations, or best 

practices with regard to stop loss 

insurance? Do such proposals focus on 

attachment points, size of the group, 

percent of total claims paid by the stop 

loss insurer, or other criteria? What are 

the issues States face in regulating stop 

loss insurance? 

12. What effect does the availability of 

stop loss insurance with various 

attachment points and other particular 

provisions have on small employers’ 

decisions to offer insurance to 

employees? 

13. What impact does the use of stop 

loss insurance by self-insured small 

employers have on the small group fully 

insured market? 

Signed at Washington, DC, this 25th day of 

April, 2012. 

Victoria A. Judson, 

Division Counsel/Associate Chief Counsel, 

Tax Exempt and Government Entities, 

Internal Revenue Service, Department of the 

Treasury. 

Signed at Washington, DC this 25th day of 

April, 2012. 

George H. Bostick, 

Benefits Tax Counsel, Department of the 

Treasury. 

Signed this 23rd day of April, 2012. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

Dated: April 25, 2012. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: April 25, 2012. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2012–10441 Filed 4–27–12; 11:15 am] 

BILLING CODE 4120–01–P 

mstockstill on DSK4VPTVN1PROD with NOTICES