House Bill 156 and Senate Bill 218, titled Increase Access for Small Employers/Insurance, make a very small change to an existing statute. It strikes the number 12 and replaces it with five.
While the change is small, the fallout from the change would be big premium increases to small businesses.
What is the statute all about?
The statute sets the number of employees a business must have to qualify for stop loss insurance. Currently it is 12. These bills move it to five.
Stop loss insurance is something businesses buy when they pay for their own medical and drug expenses.
Businesses that pay their own health expenses are known as “self-funded” in the insurance world. They differ from “fully insured” businesses who pay premiums to an insurer to cover medical expenses.
Self-funded businesses need stop loss insurance in case their medical expenses get to be too high.
For example, a business may buy a $150,000 stop loss plan from an insurer. If the business’ medical expenses exceed $150,000 in a year, insurance will pay the rest.
Many businesses prefer the self-funded setup because it is less expensive.
In that sense, lowering the number of employees to make a business eligible would seem like a win.
But as other states have shown, such a change has resulted in big premium increases for small businesses.
Why do premiums go up?
Two things happen when the employee cap for stop loss is lowered.
First, businesses who move to self-funded arrangements often have younger and healthier employees. Being younger and healthier means their medical expenses are low, and therefore their self-funded premiums are low.
But, when younger and healthier businesses go the self-funded route, the fully insured market gets older and sicker. When the market gets older and sicker, premiums go up so they can cover the increased medical expenses.
In turn, that drives more employers into less expensive self-funded arrangements and causes even greater premium increases for those who cannot self-fund.
Second, businesses who choose to self-fund, especially as they get smaller in size, are more impacted by significant medical events.
For example, a healthy, five-employee business elects a self-funded arrangement under the legislature’s proposal. But then, one employee receives a breast cancer diagnosis. Medical costs for this business are going to increase substantially as treatment can costs upwards of $100,000 a year.
Because of the group’s small size, they are fewer members to pay the expenses. Stop loss insurance will cover the costs for the year, but then one of two things happen.
Premiums for stop loss will go up dramatically to cover the increase in medical expenses. Or the group will not be allowed to renew their stop loss coverage. Unlike with fully insured plans, there are no regulations that guarantee a business is offered stop loss coverage.
Either the dramatic premium increases or lack of renewability will force the group back to the fully-insured market. They return as a more costly group, which will further drive up fully insured premiums.
NC’s Fully Insured Market
North Carolina is not the first state to try lowering the cap for stop loss coverage.
Georgia, Virginia and Kentucky have gone down this same path and their experiences provide us with stark warnings.
In Georgia, premiums have increased by 81 percent over six years for small businesses who chose not to self-fund. That amounts to more than $4,500 per person per year.
In Kentucky, premiums have increased by 67 percent, or more than $3,500 per person per year.
In Virginia, premiums have increased by 37 percent, or nearly $2,000 per person per year.
Here in North Carolina, premiums for businesses on the fully insured marketplace are increasing by as much as 19 percent in 2025 due, in part, to businesses moving off the marketplace for “alternative coverage” options such as those created by the legislature reducing small group size from 25 to 12 in 2024.
Further lowering the employee cap may sound good. It may even provide a small number of businesses with access to lower premiums for a year or two.
But the long-term impacts are significantly higher health costs for small businesses.
As the most expensive state for healthcare in the country, this is not something we can afford.
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