Recently, the U.S. Department of Labor (DOL) proposed a new set of regulations on association health plans (AHPs) that, if they are adopted into effect, could affect the medical stop-loss captive insurance market in the future.
The ruling is still in the proposal stage, but it would make it easier for groups or associations of employers to combine and form an AHP. The AHPs in question would be considered a “large group health plan”, under the Affordable Care Act, and it is hoped that this would allow them to obtain health insurance coverage at a decreased cost.
In addition, the ruling would, according to Philip Giles, QBE North America’s vice president of sales and marketing, “effectively amend regulations within the Employee Retirement Income Security Act (ERISA) to make it easier for individual employers to band together and be treated [regulated] as if they were one single large employer rather than numerous separate entities.” In the event that the ruling is adopted, it would not interfere with states’ ability to regulate Multiple Employer Welfare Arrangements (MEWAs) but rather allow MEWAs to broaden. It is also possible that the ruling, upon being adopted, could lead to the establishment of uniform regulations across the United States, as opposed to the current state regulations
Giles also expects that the AHP rules will not have an impact on the captive insurance market until several years after they’ve been passed. This is because AHPs are aimed towards small employers who can be collectively treated as a single entity for regulatory and underwriting purposes, so it is likely that the majority of AHPs will establish themselves and identify as fully-insured structures until they can obtain “sufficient mass” and a “credible track record”, which would be having over 1,000 lives in the structure and lasting for at least five years. Once this point is reached, many AHPs are likely to convert to self-insured structures in order to take advantage of self-insured plans’ ability to pre-empt state insurance regulation and benefit directives.
To conclude, Giles stated, “I would expect that a significant number of the self-insured AHPs would then explore the assumption of stop-loss risk in a captive as a way to maximize the effectiveness and efficiency of the overall programme. I expect that AHP legislation will pass in some form; this will enable broader formation of MEWAs. Once the self-insured AHPs first establish appropriate solvency and credibility, the market should see a fairly significant number placing medical stop-loss into a captive.”
At this time, the regulations are still in the proposal stage. Once they have moved from proposals to being entered into effect, we will see if these predictions are fruitful and if they do indeed bring larger numbers into medical stop-loss captives.
Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (317) 575-4440.
Sources: Captive Insurance Times