Employee Benefits Compliance, Small Employers, State-Specific Information

California SB 161 Limits Stop-Loss for Self-Funded Small Employer Health Plans

CA SB 161  (signed by Gov. Brown on October 1, 2013) limits the ability of small employers (under 100 employees) to self-insure their health benefits, beginning in 2014.

Specific provisions of SB 161

1-  CA SB 161 prohibits stop-loss insurers in California from issuing policies with specific deductibles below $35,000, for policies issued, reissued or renewed on or after January 1, 2014, to groups that have between 1 and 100 employees.  (As of 2016 the attachment point increases to $40,000).

2-  Aggregate attachment points cannot be less than the greater of one of the following:

  • $5,000 times the total number of group members;
  • 120% of expected claims; or
  • $35,000 (increasing to $40,000 in 2016)

3- Stop-loss policy cannot exclude any specific employee or dependent who is eligible for coverage under the employer’s self-funded group health plan.  This eliminates what is known as “lasering” – excluding coverage for an employee or dependent who had high claims the prior year or who has an illness which is expected to result in high claims.

4- As of April 1, 2014, and annually thereafter, stop-loss insurers in California must report to the California Department of Insurance the number of small-employer stop-loss policies they previously issued that were in effect as of December 31 of the prior year.

5- Stop-loss insurers must renew all small stop-loss policies, at the option of the small employer, except:

  • for nonpayment of premium – if the employer has been notified and billed and had at least a 30-day grace period since the date of notification, and stop-loss insurer must continue to provide coverage during the grace period
  • for fraud or intentional misrepresentation of a material fact by the small employer
  • if the insurer has been deemed to be financially impaired by the insurance commissioner, or
  • if the insurer ceases to write, issue or administer new stop-loss policies in California

Exceptions to SB 161

1-  SB 161 provisions on individual and aggregate attachment points and prohibitions on lasering do not apply to stop-loss policies that were in effect prior to September 1, 2013 for small employers.  Such policies may be renewed or reissued, or a stop-loss policy may be issued by another stop-loss insurer to maintain continuity of stop-loss coverage that was in effect prior to September 1, 2013, provided that a stop-loss policy issued to maintain continuity of coverage shall have attachments points that are the same or higher than those in place prior to September 1, 2013.  (Ins. Code section 10752.43)

2-  SB 161 does not affect the ongoing operations of certain multiple employer welfare arrangements (those regulated under Article 4.7) if they comply with small group health reforms.  (Ins. Code section 10752.7)

Background and Definitions

SB 161 as introduced in May 2013 had a minimum specific attachment point of $65,000.  This was reduced to $35,000 during debate on the bill.  The sponsor of SB 161 is Sen. Ed Hernandez (D).   SB 161 adds new California Insurance Code sections 10752 – 10752.8.

A “Specific attachment point” is the amount of health claims incurred by an individual employee or dependent in a small employer self-funded group health plan, above which the stop-loss insurer is liable for the payment.

An “Aggregate attachment point is the total amount of health claims incurred by all covered employees and their dependents in a small employer self-funded group health plan, above which the stop-loss insurer is liable for payment.

The law applies to stop-loss policies in California issued on or after Jan. 1, 2014, to small employers.

Gov. Brown signed SB 161 on Tuesday, Oct. 1, 2013.

CA 60-day WP Applies [PDF]