NOTICE
To: All Health Insurers Selling Insurance to Small Employers in California
Date: December 15, 2010
On October 1, 2008, the General Counsel of the California Department of Insurance issued a legal opinion letter (“Letter”) stating that insurers may prohibit small employers from “wrapping” a Health Reimbursement Account or other employer deductible payment mechanism with a high-deductible insurance policy. The Letter also permits insurers to charge more for policies that allow wrapping. The Letter interprets and applies the Small Employer Insurance chapter of the Insurance Code, Ins. Code §§ 10700-10718.7 (“Act”).
The Letter states that if an insurer seeks to prohibit wrapping, the insurer must set forth that restriction in the benefit plan design (“BPD”). Insurers must file all BPDs with the Department. Ins. Code § 10717.
The purpose of this Notice is to alert all health insurers selling insurance to small employers in California to the following:
1. The Department will undertake enforcement action against any insurer that prohibits wrapping and does not have on file with the Department a BPD setting forth a restriction on wrapping. Ins. Code § 10718, 10718.5, 10717(e) & 10700(v).
2. Insurers that prohibit wrapping should provide actuarial documentation to the Department establishing by clear evidence that wrapping materially and significantly increases utilization of medical services by employees of small employers.
3. Insurers that permit wrapping but charge more for policies that may be wrapped should provide actuarial documentation to the Department establishing by clear evidence (a) the extent of increased utilization of medical services by employees of small employers that wrap and (b) that the increased premium accurately reflects the extent of increased utilization.
4. The Department will review all actuarial documentation. If the Department concludes that documentation does not establish by clear evidence the facts described in Nos. 2 and 3 above, the Department will notify the insurer that the BPD may not be sold with restrictions on wrapping or based on higher pricing for wrapping. Ins. Code § 10717(e); id. § 10700(v); id. § 10700(b).
Adam M. Cole
General Counsel
