Within an environment of increased federal and state regulatory emphasis on health insurance related issues arising due to the passage by the U.S. Congress of the Patient Protection and Affordable Care Act of 2010, the Texas Department of Insurance (“TDI”) has drafted new and potentially transformative rules relating to medical stop-loss insurance policies issued in connection with self-funded employer health benefit plans. The purpose of the TDI posting is to obtain public and stakeholder input regarding an informal draft of proposed regulatory changes affecting employer health plans. Although many of the proposed changes are of a technical or evolutionary nature for health benefit plans themselves, the most significant proposal may be a new comprehensive regulatory framework contemplated for medical stop-loss insurance policies. With Subchapter F of its draft rules, TDI intends to establish criteria for the specific terms of coverage offered under stop-loss insurance policies issued to employer-sponsored self-funded health benefit plans, confirm that such policies are indeed covered by the Texas Life and Health Guaranty Association and directly regulate insurance forms and policy wording used by insurers for their medical stop-loss insurance products. TDI’s position has long been that medical stop-loss insurance is considered direct insurance in Texas, as opposed to a form of unregulated reinsurance. The proposed regulations would significantly enhance TDI’s direct oversight of medical stop-loss insurance products and potentially lead to an entirely new regulatory framework for this type of increasingly common insurance coverage.
TDI has included in its proposed regulations newly mandated specific minimum individual and aggregate attachment points which would be required under all medical stop-loss insurance policies offered in the state. By TDI’s definition and consistent with common industry practice, an attachment point represents the amount of liability for claims incurred under an employer’s self-funded employee health benefit plan above which a stop-loss insurer becomes liable for payment to the employer. TDI’s proposed minimums are not without precedent or regulatory context and are broadly consistent with those set forth in the National Association of Insurance Commissioners’ Stop-Loss Insurance Model Act, initially adopted in 1995.
In addition to the mandated minimum attachment points, the proposed regulations contain comprehensive insurance policy form requirements, including (i) required wording provisions, (ii) restrictions on insurer discretion on coverage determinations and eligibility questions, (iii) specific obligations with respect to run-out claims payments, and (iv) detailed requirements for renewal and policy termination provisions. Due to their nature and scope, each of these provisions may prove to be of particular interpretive concern to medical stop-loss insurers operating within the state if the draft proposed rules are eventually adopted.
TDI has invited comment on the informal draft rules and it is expected that both self-insured employers and their medical stop-loss insurer stakeholders will be keenly interested in the ongoing development of TDI’s new regulatory framework for this important insurance product in the State of Texas. Medical stop-loss insurance carriers offering or planning to offer coverage in Texas would be well-advised to stay apprised of developments in this area and may wish to participate in the comment process for the proposed regulations. Texas members of Locke Lord LLP’s insurance practice group will be closely monitoring the progression of the draft proposed rules through the TDI rulemaking process.
A copy of the TDI’s informal draft posting and related notices can be found here.