When Vermonters talk about rising health insurance costs, the focus is usually on premiums, hospital prices, or provider shortages. But buried in insurance regulation is a lesser-known policy quietly driving up costs for small businesses: stop-loss insurance rules. In Vermont, these regulations are making self-funded health insurance more difficult for smaller employers that might otherwise rely on it to manage health care costs.
Stop-loss insurance protects employers that choose to self-fund their health plans. Instead of paying a fixed premium to an insurer under a fully insured plan, self-funded employers pay employee claims directly, while purchasing stop-loss coverage to protect against catastrophic costs. Individual stop-loss coverage kicks in when one employee’s claims exceed a set threshold, while aggregate stop-loss protects against total claims exceeding a group limit. This structure gives employers more flexibility in plan design and potential savings in lower-claim years, while limiting exposure to extreme costs.
The key policy issue is how those thresholds, called attachment points, are regulated. Vermont’s Department of Financial Regulation (DFR), through its stop-loss insurance regulation I-2009-02, imposes attachment-point requirements that make self-funding more expensive for small employers than under the Stop-Loss Insurance Model Act promoted by the National Association of Insurance Commissioners (NAIC), which serves as a benchmark in many other states. Attachment points determine how much risk an employer must retain before stop-loss coverage begins paying claims. When those thresholds are set high, smaller employers must absorb more financial risk upfront, making self-funding impractical unless they have significant cash reserves.
This pushes small businesses out of self-funding and back into the fully insured market, where options are limited, and premiums are extremely high. Vermont’s rules don’t just affect plan pricing, but whether small employers can realistically access self-funded arrangements at all. If self-funding with stop-loss insurance is a legitimate risk-management tool for larger firms, it is difficult to justify making it structurally harder for small businesses already facing rising health insurance costs.
A more balanced alternative already exists. Vermont could move closer to the NAIC model by lowering attachment points to align with standards used in many other states, making self-funding more accessible for smaller employers. If Vermont is serious about improving affordability, it should not be limiting one of the few tools small businesses can use to manage health care risk. Aligning state rules with the NAIC model to expand choices for small businesses would be a straightforward step toward affordability.
