Despite Vermont generally ranking among the healthiest states in the country and having a high rate of health coverage, Vermont’s health insurance market is struggling and premiums are rising.

This is a result of many factors, including state and federal policy choices and many of the same demographic challenges that contribute to the broader affordability crisis in the state.

There is no silver bullet to fix health care at the state level. Layers of state and federal laws, rules, and regulations, along with the bureaucratic business processes of insurers and hospitals, put the problems beyond a simple fix.

In Part I, we looked at trends and reasons for why health insurance is getting more expensive. In Part II, we’ll look at one change Vermont can make to give small businesses another option.

Key Recommendation. One small but important thing Vermont can do to improve health insurance options for small businesses and their employees is to make it easier for smaller employers to offer self-funded coverage.

Policymakers can accomplish this by reforming the state’s needlessly restrictive medical stop loss insurance rules. Specifically, Vermont should adopt lower, uniform stop loss attachment points to make self-funded coverage more accessible to small employers and level the playing field between small and large businesses.

This reform will cost the state no money and could provide a badly needed boost in the number of commercial payers in the state’s healthcare system.

Small Businesses Need More Options. Policymakers can bring more commercial payers into Vermont’s healthcare system and create more affordable options for small business health coverage by reducing barriers to self-funded coverage.

Self-funding is when employers bear the cost of health care up to a certain amount of an employee’s health care costs. Beyond that amount, the employer purchases stop loss insurance to cover high-cost claims.

Self-funding for health care is common among the largest employers (500+ employees), with 74% opting for this type of coverage. Large employers may or may not use stop loss; those that do sometimes band together to create a “captive” stop loss insurance carrier.

While larger business frequently self-fund, 16% of small employers and 32% of medium-sized businesses offer at least one self-funded health plan. The number of self-funding small and medium-sized businesses has grown in the past fifteen years as the cost of health insurance and health care has risen.

Self-funding is attractive for some businesses because it offers more flexible and lower cost options. And if healthcare costs come in lower than expected, employers can achieve significant savings. Self-funded health coverage is federally regulated and exempt from certain state and federal mandates. This offers greater flexibility in designing coverage to meet the needs of a workforce.

The flip side is that self-funding carries greater risk than fully insured plans, in which employers know their costs for the year ahead of time. Higher than expected claims can result in higher out-of-pocket costs and spikes in stop loss premiums from year to year. Stop loss skeptics fear this could cause turbulence across different group health insurance markets.

However, small employers make complex financial decisions on a weekly, monthly or yearly basis. They are capable of understanding risk as well as their larger competitors, and state lawmakers and regulators should give them the opportunity to see if self-funding is a more affordable, flexible option for their business.

Unnecessary restrictions on stop loss insurance that make self-funding harder for small employers widen the competitiveness gap between large and small businesses.

What Are Attachment Points? In this context, stop loss attachment points are dollar thresholds above which the insurer assumes liability for health care costs incurred by the policyholder. An employer assumes liability for all costs below the thresholds.

There are two types of attachment points, as explained by the Self-Insurance Institute of America:

Specific Stop-Loss is the form of excess risk coverage that provides protection for the employer against a high claim on any one individual. This is protection against abnormal severity of a single claim rather than abnormal frequency of claims in total. Specific stop-loss is also known as individual stop-loss. 

Aggregate Stop-Loss provides a ceiling on the dollar amount of eligible expenses that an employer would pay, in total, during a contract period. The carrier reimburses the employer after the end of the contract period for aggregate claims.

The higher the attachment point, the more risk that an employer must bear on their own in order to self-fund.

What Are Vermont’s Rules for Medical Stop Loss? Vermont’s current stop loss attachment points are significantly higher than most states and punitive toward small businesses:

For 25 or fewer employees: annual attachment point for claims per individual of at least $40,000, and annual aggregate attachment point of at least 120% of expected claims or $40,000 (whichever is greater)

For 25+ employees: annual attachment point for claims per individual of at least $33,200, and annual aggregate attachment point of at least 120% of expected claims or $33,200.

The National Association of Insurance Commissioners (NAIC) adopted Model Act 92-1 for medical stop loss coverage that recommends:

For 50 or fewer employees, an annual attachment point for claims per individual of at least $20,000, and annual aggregate attachment point of at least $4,000 times the number of group members, (ii) 120% of expected claims, or (iii) $20,000 (whichever is greater).

For 51+ employees: annual attachment point for claims per individual of at least $20,000, and annual aggregate attachment point of at least 110% of expected claims

This means Vermont businesses must absorb at least 66% to 100% more in health care costs compared to NAIC model states before medical stop loss coverage can kick in.

And within Vermont, small businesses must pay a 17% premium to offer the same coverage as larger employers.

Vermont’s current rules are reflective of a misguided effort during the 2010s to deter small employers from having the same opportunity to offer self-funded health coverage as large employers. This effort was driven, in part, by self-funded plans being largely exempt from some state and federal regulations.

Stop loss skeptics view self-funded plans as inferior to the more highly regulated fully insured group market, believe small businesses are not capable of judging the level of risk associated with these plans, and raise concerns about adverse selection between fully-insured and self-insured markets.

It’s important to note that Vermont’s high attachment points do not stop large businesses from self–funding: 53% of Vermont employees receive coverage through a self-funded plan. They just make it difficult for small and medium-sized businesses to utilize the same option.

Are Vermont’s Rules An Outlier? They didn’t used to be, but they are now.

From 2009 through 2016, Vermont followed the NAIC model act. However, in 2016 and 2022, Vermont increased the minimum attachment points for individual employer stop loss insurance well beyond the model act and most other states.

Small businesses elsewhere in New England and beyond have lower barriers to self-funding. Small employers in Vermont with fewer than 25 employees who seek to self-fund face minimum medical liability exposure:

– 39% higher than Maine;

– 100% higher than Connecticut, New Hampshire, Rhode Island.

More than two dozen other states, including Massachusetts, do not set minimum attachment points for individual employer stop loss insurance.

No Minimum (24): AL, AZ, GA, HI, ID, IL, IN, IA, MA, MI, MS, MO, MT, NE, NM, ND, OH, SC, SD, TX, VA, WV, WI, WY

Small Employer Minimums Similar to or Below NAIC Model (14): AK, AR, CT, FL, KS, KY, LA, MN, NV, NH, OK, OR, RI, UT

*The above information is based on publicly available information and individual reviews of state insurance laws and rules. The lists reflect our understanding of state stop loss regulations as of July 2025.

What Should Vermont Do? Vermont should look to bipartisan laws in Rhode Island and Minnesota that establish a fair, level playing for medical stop loss insurance for small and large employers.

Minnesota leveled the playing field by applying the NAIC’s model regulations for large businesses to all businesses in the state:

For all groups: stop loss coverage must have (i) annual attachment point for claims per individual of at least $20,000, or (ii) annual aggregate attachment point of at least 110% of expected claims.

Rhode Island also adopted a level playing field but with a slightly higher aggregate attachment point (120%) of expected claims.

At a minimum, Vermont should revert back to NAIC Model Act 92-1.