Neither Stop-Loss Coverage Nor Other Insured Benefits Cause Self-Insured Health Plan to Be Considered Insured

A participant in a union- and employer-sponsored self-insured group health plan was injured in an accident and sued the other parties involved. The plan administrator asserted its right, under the terms of the plan, to be reimbursed for the participant’s accident-related medical expenses (paid by the plan) out of any recovery. The participant argued that the right asserted by the plan administrator (an “equitable lien”) was unenforceable under state insurance law. The plan administrator countered that the state law was preempted by ERISA. The preemption question hinged on whether the plan was insured or self-insured. If the plan was insured, the state law would apply because state laws regulating insurance are exempted from ERISA preemption under the “savings” clause. If the plan was self-insured, the state law would not apply because the “deemer” clause of ERISA’s preemption provisions prevents an ERISA plan from being deemed an insurance company under state law. The participant contended that the plan was insured due to the presence of stop-loss insurance and other insured benefits, such as vision coverage and life insurance.

Citing long-standing precedent (see our Checkpoint article) to reject the participant’s argument, the court explained that stop-loss insurance does not make a plan insured for ERISA purposes. And while a very low attachment point (the dollar threshold at which the stop-loss coverage provides protection) might indicate that a plan is not truly self-insured (because little risk is retained by the plan sponsor), the attachment point here was not particularly low, and in fact was high enough to strengthen the finding that the plan was self-funded. Nor did the presence of some insured benefits cause the plan to be considered an insured plan, as it was clear and undisputed that the insured benefits were separate and distinct from the self-insured medical benefits. Because the state insurance law did not apply, the equitable lien was enforceable against the participant’s recovery from the third parties.

EBIA Comment: Sponsors of self-insured plans often purchase stop-loss insurance to help protect themselves from the financial risks of self-insuring. But stop-loss insurance does not pay participants’ benefit claims and may not even reimburse the plan sponsor or plan for all catastrophic claims. Thus, even though stop-loss coverage is purchased from an insurer, it lacks the risk-shifting element essential to the concept of true insurance, and typically does not qualify as health insurance. For more information, see EBIA’s Self-Insured Health Plans manual at Sections III.B (“When Is a Health Plan ‘Self-Insured’?”), V.E.1 (“The Basics of ERISA Preemption”), and XVII (“Stop-Loss Insurance).” See also EBIA’s ERISA Compliance manual at Sections XI.C (“Subrogation & Reimbursement: Legal Rules and Design Considerations”) and XXXIX (“ERISA Preemption of State Laws”). You may also be interested in our webinar, “Stop-Loss Insurance for Self-Insured Health Plans” (recorded on 10/28/2020).

Contributing Editors: EBIA Staff.