New Bill Strips States of Power to Regulate Stop-Loss Insurance, Shielding Self-Funded Employers from State Oversight

The Self-Insurance Protection Act is a short, sharp piece of legislation aimed squarely at changing how employer health plans manage risk. Essentially, this bill confirms that medical stop-loss insurance—the financial safety net employers use when they self-fund their employee health plans—is definitively not considered “health insurance coverage” under federal law (specifically, the Employee Retirement Income Security Act of 1974, or ERISA).

If you’re working for a company that self-funds its health benefits, this bill is about protecting your employer’s wallet, not yours directly. Stop-loss insurance reimburses the employer if a worker’s medical claims exceed a certain dollar amount, shielding the company from catastrophic costs (SEC. 2). The real kicker in this bill, however, is what it does to state regulators.

The Federal Takeover of Risk Management

Section 3 amends ERISA to explicitly exclude stop-loss policies purchased by self-insured group health plans from the definition of “health insurance coverage.” This is a technical move, but it matters because it reinforces that states cannot regulate this product as they would traditional health insurance.

But the major policy shift comes in Section 4, which is a broad federal preemption clause. It states that federal law will now override any current or future State law that attempts to restrict a group health plan from purchasing stop-loss insurance to protect against high claims losses. In plain English, if a state has a regulation designed to make the stop-loss market safer or more stable—say, by setting minimum attachment points (the deductible the employer must meet before the stop-loss kicks in) or requiring certain financial reserves from the stop-loss carriers—this bill wipes those regulations off the map.

Who Pays When the Safety Net Fails?

For employers, this bill is a win for certainty and efficiency. They get a clear, federal green light to manage their financial risk without having to navigate 50 different sets of state rules. This is especially helpful for large companies operating across state lines, as it standardizes their health plan administration.

However, the massive preemption in Section 4 raises serious questions about consumer protection. State insurance departments often regulate the stop-loss market to ensure the carriers selling these policies are solvent and operating fairly. When a state law is preempted, that layer of local oversight vanishes.

Consider this real-world impact: If a stop-loss carrier fails or refuses to pay a massive claim to an employer, the employer’s self-funded plan is suddenly on the hook for that entire cost. If the state had reserve requirements or other solvency rules that are now preempted, the potential for that failure increases. While stop-loss is meant to protect the employer, the stability of that protection directly impacts the employees' health plan. If the plan runs out of money because its stop-loss carrier defaults, the employees are the ones facing unpaid bills.

This bill prioritizes the availability of stop-loss insurance for employers by removing regulatory hurdles, but it does so by stripping away the state-level safeguards that were designed to ensure the product itself is reliable and financially stable. It’s a trade-off that favors administrative ease for plan sponsors over the regulatory oversight traditionally provided by state insurance commissioners.