N.J. Examines Stop-Loss Insurance for Self-Insured Small Businesses

May 2, 2012

A growing number of small businesses in New Jersey are self-funding or self-insuring their employees’ healthcare costs, and they are opting out of paying fixed premiums for traditional health insurance plans like those offered by BlueCross/BlueShield.

This method, traditionally embraced by large corporations, is gaining popularity by smaller companies that are seeking more cost-effective ways to fund their workers’ health benefits.

One important element of such an approach is acquiring stop-loss insurance. While self-insured companies would pay for most of the routine healthcare services used by their employees, they would turn to stop-loss insurance coverage when employees require unusually costly healthcare treatments arising from major accidents or sudden illnesses, for example.

But New Jersey regulators say they continue to receive complaints from small businesses that say some insurers are selectively offering their stop-loss insurance only to businesses with healthier workforce. According to complaints, some insurers even used medical questionnaires that ask the health status of individual employees before deciding to offer stop-loss insurance coverage and setting rates.

The New Jersey Department of Banking and Insurance told Insurance Journal that its regulators are currently developing new rules to tackle this issue. The new rules would likely prevent insurers from using individual employees’ health status as a factor when offering stop-loss policies to small businesses.

“The department is in the process of developing regulations for stop loss insurance coverage. The Department of Banking and Insurance is holding routine stakeholder meetings regarding a regulatory proposal,” said Marshall McKnight, a spokesman for the department. He said the regulations that are currently in development aim to help small businesses and their employees.

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