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NYU Annual Survey of American Law

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As implementation of the Affordable Care Act reshapes the US health insurance market, state and federal policy makers should be prepared to revisit regulation of stop-loss coverage — a form of reinsurance — for small businesses. Aspects of the reform law could motivate small businesses to self-insure, rather than participate in state-regulated markets either inside or outside the new health insurance exchanges. If younger or healthier groups self-insure, premiums for insured plans will rise, perhaps to an extent that could seriously impair the regulated market. State or federal lawmakers can influence small businesses to participate in the regulated market by making it more difficult or costly to obtain stop-loss coverage, which self-funded employers rely on to protect their businesses from catastrophic medical costs incurred by one or more insured workers. Regulators can limit the comprehensiveness of stop-loss coverage, ban stop-loss coverage outright, or regulate it as they do primary coverage. Because the issues are national in scope, and because uncertainty over ERISA preemption complicates state initiative, the federal government should take the lead in determining the proper confines of self-funding in the small-group employer market.


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