Montana state insurance regulators recently raised a red flag about the increasing availability of self-insured limited partner health plans. As consumers seek relief from the skyrocketing costs of major medical insurance plans, limited partner health plans are rising in popularity, with Montana reporting that at least 12 companies now offer them in the state.
Individuals who purchase these plans pay to be classified as employees or limited partners of a company, but they do little or no actual work for the company. Companies offering these plans describe them as self-insured health coverage backed by stop-loss insurance. These plans fall under the jurisdiction of the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA).
However, many limited partner health plans cover only basic preventive care. Although they come at low premiums, the plans often leave individuals with higher out-of-pocket costs from medical bills that the plans don’t cover.
State insurance regulators in Montana say they are receiving complaints from state residents who expected quality health insurance coverage but instead ended up with denied coverage for many medical expenses. As a result, insurance regulators are cautioning consumers to thoroughly investigate their insurance options before signing up for a plan. Nonetheless, the rapid growth of limited partner health plans could prompt Congress to approve association health plans, which offer self-insured health plan coverage with regulatory oversight.
The broader context is steadily rising costs for traditional medical insurance coverage. More individuals are looking for lower-cost options, including limited partner health plans that seem to allow them to participate in employer-sponsored group health plans. However, the plans are self-insured health plans with stop-loss insurance, not employer-sponsored group health plans. Increased use of these plans could unpredictably affect claim risk for stop-loss issuers.
Since 2014, the Affordable Care Act (ACA) has required individual and family major medical insurance plans to cover about 60% of the value of benefits offered in a state’s essential health benefits (EHB) package, or standard benefits package. The plans also may not impose annual or lifetime coverage limits for EHB services.
Furthermore, the ACA bars insurance plan issuers from considering many individual factors, including health factors, when selling coverage. Issuers can consider only consumers’ ages, locations, and participation in wellness incentive programs. The ACA also provides premium tax credit subsidies for individuals residing in households with annual incomes of up to 400% of the federal poverty level. However, no premium tax credit subsidies are available for households with annual incomes of over 400% of the federal poverty level, or for those who buy insurance products that fall outside ACA rules. For instance, critical illness insurance plans and health care cost-sharing ministries are not subject to ACA rules.
According to some major medical insurance companies and state regulators, allowing alternatives such as self-insured limited partner health plans may adversely affect the individual major medical insurance market. When healthier consumers embrace these alternatives, ACA products will attract only older and less healthy individuals. Companies and regulators call this phenomenon “adverse selection.”
Another concern for state regulators is that limited access to information about, and limited regulation of, these plans makes it harder to determine whether they are true self-insured plans or are merely backed by stop-loss insurance. In fact, in a January 2020 advisory opinion, an EBSA official opined that a limited partner health plan was not a self-insured plan subject to the Employee Retirement Income Security Act (ERISA).
In contrast, those who favor allowing consumers access to limited partner health plans and other non-ACA plans argue that major medical insurers fear low-cost competition. They also accuse regulators of designing ACA individual major medical products so that consumers pay large premiums for sparse or nonexistent coverage in some situations.
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