Small employers are often told one of two things about self-funding. The first is that ERISA lets any employer self-fund anywhere. The second is that several states ban small-group self-funding. Neither statement is accurate enough to support a benefits decision.
The employer health plan and the stop-loss policy are separate contracts. A self-funded employer is responsible for paying plan claims. The stop-loss insurer reimburses the employer after claims cross the policy's attachment point. States usually cannot turn the underlying ERISA plan into an insured plan, but they can regulate the stop-loss policy sold by an insurer in that state.
That distinction creates the real question for a small company: not simply, "Can we self-fund?" but, "Can we buy stop-loss coverage at attachment points our cash flow can support?"
The old three-state ban list is wrong
Some state-law summaries still say New York, the District of Columbia, and Rhode Island prohibit self-funding below 100 employees. Current primary sources do not support that list.
New York does impose a practical barrier. The New York Department of Financial Services says stop-loss insurance may be issued only to a large employer, defined for this purpose as an employer with 101 or more full-time-equivalent employees in the prior calendar year. New York also warned carriers against delivering small-group stop-loss policies out of state to avoid its community-rated market rules.
The District of Columbia and Rhode Island take a different approach. Their laws set minimum attachment points. The 2025 National Association of Insurance Commissioners state chart reports a $40,000 specific minimum in DC, plus an aggregate floor equal to the greatest of $5,000 times group members, 120 percent of expected claims, or $40,000. Rhode Island uses a $20,000 specific minimum and an aggregate floor of 120 percent of expected claims. Those rules can make a proposal more expensive or leave more risk with the employer, but they are not the same as a ban.
California is also frequently described too broadly. California does not use New York's 101-employee eligibility rule. For small-employer stop-loss policies, California Insurance Code sections 10752 and 10752.4 set a $40,000 minimum specific attachment point and an aggregate minimum equal to the greatest of $5,000 times the number of group members, 120 percent of expected claims, or $40,000.
Delaware is another example of why old charts fail. Delaware Code title 18, section 7218(e), now allows a small-employer carrier to issue or renew stop-loss coverage when the employer has more than five eligible employees and meets the state's Delaware-employment test. A summary that calls Delaware a blanket small-group prohibition misses the current text.
Why attachment points decide whether a plan is workable
A specific attachment point applies to one covered person. If the policy has a $75,000 specific attachment point and one employee generates $310,000 in eligible claims during the contract period, the employer first pays the claims under its plan. The stop-loss carrier may then reimburse eligible claims above $75,000, subject to the contract's definitions, limits, exclusions, and timing rules.
An aggregate attachment point applies to the group's eligible claims as a whole. It is often expressed as a percentage of expected claims. If expected annual claims are $1,000,000 and the aggregate attachment point is 120 percent, aggregate reimbursement generally does not begin until eligible claims reach $1,200,000, after applying the policy's specific-stop-loss provisions and other terms.
State minimums are floors on the risk an employer must retain. They are not promises that a carrier will quote the floor. A carrier can offer a higher attachment point based on underwriting. It can also apply a higher attachment point to a known high-cost claimant, commonly called a laser, where state law and the contract permit it.
This is why a legally available policy can still be a poor fit. A 35-person employer may be allowed to self-fund, yet lack the cash reserves to absorb several claims below a $40,000 state minimum, a 120 percent aggregate corridor, an individual laser, and reimbursement delays at the same time.
Employers should compare that exposure with the premium and pooling protection available in a fully insured plan. The answer is not always that self-funding saves money. A small group with older employees, ongoing specialty medications, or several known procedures may receive more value from the community-rated small-group market than from medically underwritten stop-loss coverage.
Selected state rules employers should know in 2026
The table below is a screening tool, not a substitute for a state-specific filing review. It focuses on rules that materially affect small-employer quotes. The NAIC chart was last reviewed state by state in 2025, so each quote should still be checked against the current statute, regulation, or insurance-department bulletin.
| State or jurisdiction | Small-employer rule that matters | Practical effect |
|---|---|---|
| New York | Stop-loss insurance may be issued only to a large employer with 101 or more full-time-equivalent employees in the prior calendar year. The minimum aggregate attachment point for eligible large-employer policies is 110 percent of expected claims. | A group of 100 or fewer cannot solve the issue by asking for a higher deductible. The stop-loss policy itself is unavailable under the DFS rule. |
| California | Small-employer policies use a $40,000 minimum specific attachment point. The aggregate minimum is the greatest of $5,000 times group members, 120 percent of expected claims, or $40,000. | Self-funding is not banned, but the employer cannot transfer risk below California's statutory floors. |
| Delaware | A small-employer carrier may issue or renew stop-loss coverage when the employer has more than five eligible employees and meets the Delaware employee-location test. | Five or fewer eligible employees are outside the statutory permission. Larger small groups still need an available carrier and an approved contract. |
| District of Columbia | The minimum specific attachment point is $40,000. The aggregate minimum is the greatest of $5,000 times group members, 120 percent of expected claims, or $40,000. | DC uses attachment-point floors, not the 100-employee stop-loss prohibition often attributed to it. |
| Rhode Island | The minimum specific attachment point is $20,000 and the aggregate minimum is 120 percent of expected claims. | The rule sets retained-risk floors. It does not support calling Rhode Island a sub-100 ban. |
| Colorado | For groups with 50 or fewer covered employees, the specific minimum is $20,000. The aggregate minimum is the greater of 120 percent of expected claims or $20,000. Colorado changed its small-employer definition from 100 to 50 effective January 1, 2026, subject to transition rules for existing small-group coverage. | A 51-to-100 employee group may now be treated differently than it was in 2025. Quote classification must be checked for the 2026 plan year. |
| Connecticut | For groups of 50 or fewer, the specific minimum is $20,000 and the aggregate minimum is the greatest of $4,000 times group members, 120 percent of expected claims, or $20,000. For larger groups, the aggregate floor is 110 percent of expected claims. Connecticut also limits lasers to three times the policy's standard attachment point. | The employer must review both the base attachment point and any individual laser, not just the monthly funding amount. |
| Florida | A policy falls within health-insurance treatment if its specific attachment point is below $20,000. For groups of 50 or fewer, the aggregate test uses the greatest of $4,000 times employees, 120 percent of expected claims, or $20,000. | A quote below the threshold may be regulated as health insurance rather than stop-loss insurance. |
| Minnesota | For small-employer group health coverage, the specific floor is $20,000 and the aggregate floor is 110 percent of expected claims. | Minnesota uses a different aggregate percentage than several states that follow the 120 percent small-group model formula. |
| New Hampshire | Current department guidance uses a $31,000 specific minimum. For groups with 50 or fewer covered employee members, the aggregate minimum is the greatest of $6,200 times covered lives, 120 percent of expected claims, or $31,000. The state distinguishes covered employee members from covered lives. | Counting dependents correctly can change the dollar floor. The August 13, 2026 bulletin should be part of any current quote review. |
| Vermont | For small employers with more than 25 employees, the specific minimum is $33,200. For employers with 25 or fewer, it is $40,000. The aggregate minimum is the greater of 120 percent of expected claims and the applicable dollar floor. Vermont defines a small employer as up to 100 employees. | A group can be legally eligible and still face a materially higher floor because it has 25 or fewer employees. |
Maine belongs on the watch list rather than in a fixed 2026 table. Its existing Rule 135 has used a $28,700 specific minimum and a 120 percent aggregate minimum. The Maine Bureau of Insurance posted a proposed amendment in 2026 that would let the superintendent set the specific amount, prohibit new policies for groups with 10 or fewer enrolled employees, and preserve limited renewal treatment. As of August 17, 2026, Maine's official rules page still labels that amendment as proposed. A Maine quote should be checked against the final rule status on the quote date.
A 40-person example shows why the formulas matter
Assume a 40-person company expects $480,000 in eligible annual claims. It receives a proposal with a $25,000 specific attachment point and an aggregate attachment point of 120 percent of expected claims.
The percentage calculation is $576,000. A state following the NAIC model formula for groups of 50 or fewer may require the aggregate attachment point to be no lower than the greatest of three numbers:
- $4,000 times 40 group members, or $160,000
- 120 percent of expected claims, or $576,000
- The fixed $20,000 floor
The controlling result is $576,000. The employer retains an expected-claims corridor of $96,000 before aggregate reimbursement can begin, in addition to the way specific claims, exclusions, and reimbursements work under the contract.
Now move the same employer to California. A $25,000 specific attachment point would not meet the $40,000 state minimum. The aggregate calculation would compare $200,000, which is $5,000 times 40 members, with $576,000 and $40,000. The aggregate floor remains $576,000, but the specific risk retained for any one person rises from the proposed $25,000 to at least $40,000.
Move the group to New York and the math stops earlier. A 40-person employer is not a large employer under the current New York DFS rule, so a stop-loss quote cannot be made compliant by changing the attachment point.
The lesson is simple. Group size, covered lives, expected claims, and state definition all have to be known before a proposal can be evaluated.
Seven checks to run before accepting a quote
1. Confirm which state governs the stop-loss policy
Do not assume the employer's headquarters settles the question. Ask the carrier to identify the state of issuance and the statute, rule, or bulletin used in its filing. New York has specifically warned against out-of-state delivery intended to evade its small-group rules.
2. Recalculate the employer-size test
States do not all count the same thing. A rule may refer to eligible employees, covered employees, full-time equivalents, members, or covered lives. New Hampshire's 2026 guidance is a good example: covered employee members classify group size, while covered lives can drive the aggregate formula.
3. Separate specific from aggregate protection
A proposal can look safe because its aggregate maximum is predictable while still exposing the employer to a large specific deductible for one person. Review both attachment points and model several claims crossing the specific threshold.
4. Find every laser and exclusion
Ask for a claimant-specific schedule. Record the standard specific attachment point, each laser, and any excluded condition, drug, provider, or treatment. Connecticut limits a laser to three times the policy's chosen attachment point, but rules differ by state.
5. Read the contract basis
Terms such as paid, incurred, run-in, run-out, 12/12, 12/15, and terminal liability decide whether late claims are reimbursable. A low attachment point does not help if a large December claim is paid outside the covered period. Benefitra's stop-loss contract guide explains the timing issue in detail.
6. Test reimbursement timing and working capital
Stop-loss commonly reimburses the employer after the employer or plan has paid an eligible claim. Ask how quickly reimbursements are processed, whether an advance-funding feature exists, and how disputes are handled. Keep enough liquidity for the gap.
7. Compare the same maximum obligation
A level-funded quote, a traditional self-funded quote, and a fully insured renewal should be compared on the same enrollment and contribution assumptions. Include fixed fees, expected claims, maximum claims funding, stop-loss premium, taxes, commissions, terminal liability, and employee contributions. The Health Funding Projector can organize the comparison, but the state-law assumptions still need human verification.
State law is only one part of readiness
Passing a state-law screen does not make a group ready to self-fund. The employer still owns claim-payment responsibility, ERISA fiduciary duties, plan-document obligations, vendor oversight, and cash-flow risk.
Start with credible claims information. A carrier may request 12 to 24 months of claims and enrollment data before giving useful terms. The claims-history preparation guide explains why beginning at renewal is often too late.
Then test whether the company can absorb the maximum monthly and annual obligation without delaying claims or disrupting operations. A group that needs stop-loss reimbursement to arrive immediately may not have enough working capital for the arrangement.
Finally, compare the result honestly with community rating. Self-funding can reward a healthy group, but medical underwriting can also reveal that a fully insured small-group pool is providing a subsidy. The fully insured to self-funded decision guide covers that crossover, while the minimum group-size guide addresses operational readiness.
Frequently asked questions
Can a company with fewer than 50 employees self-fund its health plan?
Usually, yes, but availability depends on the stop-loss rules and carrier market in the governing state. New York is the major exception discussed here because its current rule limits stop-loss insurance to employers with 101 or more full-time-equivalent employees. Other states may impose a minimum group size or attachment-point floor that changes the economics.
Does ERISA override state stop-loss insurance laws?
Not generally. ERISA can preempt state laws that regulate an employer's self-funded plan, but states retain authority over insurance policies and insurers. The U.S. Department of Labor has stated that states may regulate stop-loss policies issued to plans or plan sponsors when the law regulates insurance.
Is stop-loss insurance the same as employee health insurance?
No. The employee receives benefits from the employer's self-funded plan. The stop-loss policy reimburses the employer or plan sponsor after eligible claims cross the policy threshold. Employees are not supposed to be the direct insureds under a true employer stop-loss policy.
What is the difference between a specific and aggregate attachment point?
Specific stop-loss responds to eligible claims for one covered person after that person's claims cross a stated amount. Aggregate stop-loss responds when the group's eligible claims, after the policy's adjustments, cross a group-wide amount. Employers often buy both forms of protection.
What does 120 percent of expected claims mean?
If the carrier projects $500,000 in eligible claims, 120 percent equals $600,000. The $100,000 difference is the aggregate corridor. The final contract may calculate eligible claims differently, so the percentage should be checked against the policy definition rather than a sales illustration alone.
Can a carrier set an attachment point above the state minimum?
Yes. A statutory minimum prevents the carrier from transferring more risk than state law allows below that floor. It does not require a carrier to offer the minimum. Underwriting may produce a higher group attachment point or a higher claimant-specific laser.
Does a level-funded plan avoid these state rules?
Not automatically. Many level-funded arrangements use a self-funded employer plan paired with stop-loss insurance. The monthly payment format does not erase the insurance contract or the state rules that apply to it. Ask the vendor to identify the stop-loss carrier, policy form, governing state, and attachment points.
Why can two state charts show different numbers?
Dollar amounts can be indexed, bulletins can update statutory figures, group definitions can change, and one chart may count employees while another counts covered lives. New Hampshire's August 2026 guidance and Colorado's January 2026 group-definition change show why a dated chart is not enough for a live quote.
What should an employer request from a broker before deciding?
Request the full stop-loss policy form, governing-state citation, census count used for the group-size test, specific and aggregate attachment-point calculations, laser schedule, contract basis, exclusions, reimbursement process, maximum annual obligation, renewal terms, and a comparable fully insured option.
Sources
- New York Department of Financial Services, Stop Loss Group Checklist: https://www.dfs.ny.gov/apps_and_licensing/health_insurers/ah_products/stop_loss_group_checklist
- New York Department of Financial Services, Small Group Stop Loss Study: https://www.dfs.ny.gov/system/files/documents/2024/10/sg-stop-loss-study-20180301.pdf
- New York Department of Financial Services, statement on out-of-state small-group stop-loss coverage: https://www.dfs.ny.gov/reports_and_publications/press_releases/st20161027
- California Insurance Code sections 10752 through 10752.8: https://leginfo.legislature.ca.gov/faces/codedisplayexpand.xhtml?tocCode=INS
- Delaware Code title 18, chapter 72, section 7218(e): https://www.delcode.delaware.gov/title18/c072/index.html
- Colorado General Assembly, SB24-073 and the 2026 small-employer definition: https://www.leg.colorado.gov/bills/sb24-073
- Connecticut Insurance Department, Bulletin HC-126: https://portal.ct.gov/cid/-/media/cid/1_bulletins/bulletin-hc-126.pdf
- New Hampshire Insurance Department, August 13, 2026 guidance on stop-loss requirements: https://www.insurance.nh.gov/news-and-media/new-hampshire-insurance-department-issues-guidance-stop-loss-insurance-requirements
- Vermont Department of Financial Regulation, Health Care Stop Loss Insurance Rule H-2009-02: https://dfr.vermont.gov/reg-bul-ord/health-care-stop-loss-insurance
- Maine Bureau of Insurance, rules and 2026 proposed Rule 135 amendment: https://www.maine.gov/pfr/insurance/legal/rules
- National Association of Insurance Commissioners, 2025 Stop Loss Coverage state chart: https://content.naic.org/sites/default/files/model-law-chart-ha-90-stop-loss-coverage.pdf
- U.S. Department of Labor, Technical Release 2014-01: https://www.dol.gov/node/63762
Prepared for review by the Benefitra benefits team. This article is general information for employers. It is not legal, tax, actuarial, or coverage advice. State rules and insurance-department guidance can change. Confirm the governing rule, approved policy form, and quote terms with qualified benefits counsel and the applicable state insurance department before changing plan funding.