Stop-Loss Insurance Bill's Impact on Maryland Small Businesses

Date: May 19, 2015

Due to the rising costs of healthcare, many small businesses have turned to the self-fund option, in which a pool of money is used to pay for employees’ healthcare costs and companies purchase stop-loss insurance that kicks in when expenses exceed the anticipated amount.

House Bill 552, which passed the General Assembly, increases the amount at which stop-loss insurance kicks in from $10,000 to $22,500. This bill would make it harder for small businesses to use the self-insurance option by increasing both their risk and costs.

Allan G. Hungerford, who owns a masonry distribution business and co-owns an Ace Hardware store, is one of the small business owners affected. Each of his stores employs five to 10 full-time employees and around 10 part-time employees. Generally five or six full-time employees require health insurance benefits.

“We have been using self-funded plans in recent years,” he says. “Our insured employees are of average health, with an average age in the late 40s. On a typical year, we saved nearly 25 percent, after all expenses were paid, over traditional insurance plans while providing the same quality and choices in health insurance. This while knowing that if we had a catastrophic illness, all savings would be lost for the year.”

Under SB 703, Hungerford’s businesses would have to reserve another $12,500 per year for claims, or $2,500 per employee for a group of five.

“The new bill raises our risk pool by $12,500,” he says. “While we could afford to risk, and probably lose, $7,000 or $8,000 if we had a bad year, a business our size could not afford to lose $20,000 on a bad year.”

In effect, the bill would price smaller businesses out of the self-insured market, limiting choice for how insurance benefits are provided, Hungerford says.

“I personally believe that the government and the handful of large insurance companies in the Maryland market have taken this opportunity to shut off one more option that we have as employers,” he says, “thereby driving us back into the traditional insurance market or driving us out of the market, leaving our employees without health insurance benefits and forcing them into the Maryland self-insured market.”

Related Content: Small Business News | Economy | Maryland

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