If you’re not an insurer, can you buy reinsurance? “No” would seem to be the simple answer. OK, what if you sell a stop-loss policy to a self-funded benefit plan? The benefit plan is kind of like an insurer, so that would make you sort of a reinsurer, right?
Not in Texas. In Texas Dept. of Ins. v. Am. Nat. Ins. Co., the Texas Supreme Court addressed this very situation and held that a stop-loss policy sold to self-funded benefit plans was not reinsurance. As such, the state Department of Insurance could regulate stop-loss insurers as insurers and require them to contribute to the state health insurance risk pool and comply with other regulations governing insurers (which was the underlying dispute).
The reason? The Department had a rule that said that stop-loss and excess health policies were direct insurance, not reinsurance, because “reinsurance is the redistribution of risk between sophisticated insurers in the business of insurance.” In other words, only an insurer can buy reinsurance. And that longstanding rule was entitled to deference by the courts. So, as we’ve said before (see here), the “re” part of reinsurance is important, especially in Texas.