An Introduction to Stop Loss Coverage

Transcription

An Introduction to Stop Loss Coverage
Agenda
Self-Insurance Overview
Stop Loss Products & Options
Risk Management – Underwriting / Pricing
Stop Loss Distributors
State of the Market
Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
1
What is Self-Insurance?
• Self-Insurance (or Self-Funding) is
an alternative means of financing
and structuring a group medical
benefits program
• The employer assumes the risk of all
medical expenses, however;
• Eligible expenses over the Stop Loss
deductible are reimbursable by the
insurance carrier
• A TPA operates the plan, including
paying claims, maintaining eligibility,
producing plan documents and ID
cards, and much more
3
Comparison of Fully-Insured vs. Self-Insured
Fully-Insured
Self-Insured
• Fixed Costs (premium)
• Fixed costs + Variable costs
• Administrator comes
with Insurance
• Variety of service providers
• Governed by state law
• Standard plans and benefits
• Governed by Federal law
(ERISA)
• Flexible plan designs and
benefits
• All size employers
• Medium/large employers
4
Advantages of Self-Insurance
What are the advantages of Self-Insurance?
 Control of plan design
 Lower cost of operation
 Cash flow benefit
 Elimination of state mandated benefits
 Elimination of most premium tax
 Administration tailored to the
employer’s needs
 Potential experience gain
 Access to improved reporting
 Risk management through
Stop Loss insurance
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Disadvantages of Self-Insurance
What are the disadvantages of Self-Insurance?
 Employer assumes a portion
of the risk
 Employer’s assets are exposed
to legal action against the sponsored
benefit plan
 Employer must provide the
services normally provided by
the insurance carrier
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Stop Loss Products & Options
Role of Stop Loss Coverage
• The employer assumes the risk
for the medical benefit plan
Additional
Programs
• Stop Loss insurance is provided
to protect the plan against
extreme losses
Stop Loss
Insurance
• Specific
• Additional programs are
offered to assist employers
in managing health costs
• Aggregate
Underlying Self-Insured
Medical Plan
8
Specific Stop Loss
How does Specific Stop Loss coverage work?
• Protects employers from large
catastrophic claims generated by
individual employees or dependents
• Individual deductibles range from
$20,000 to $1,000,000 depending on
the size of the employer and
tolerance to take risk
• After an eligible employee/
dependent’s claims paid exceed the
deductible in a policy year, covered
expenses above the deductible are
reimbursed to the employer by the
Stop Loss carrier
9
Aggregate Stop Loss
How does Aggregate Stop Loss coverage work?
• Protects employers from excess
utilization by all covered plan
participants
• An “attachment point” is calculated to
determine the expected liability
(projected claims plus corridor for the
policy year)
• If the attachment point is exceeded,
the Stop Loss carrier reimburses the
employer for eligible claims in
excess of the attachment point
10
Stop Loss Illustration
$100,000
SPECIFIC
$50,000
AGGREGATE
$0
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Agreement Types
What types
of Stop Loss
agreements
are available?
• Incurred Agreements
• Paid Agreements
• Run-In and Run-Out features
• Policy Period – Effective date of the policy
continuing until the Termination date of the
policy. Usually a 1-year period
Contract
Definitions
Example: January 1, 2009 – December 31, 2009
• Benefit Period – Period of time in which a
Covered Expense must be incurred by the
Covered Person and paid by the Plan. Includes
the run-in and/or run-out period
Example: October 1, 2008 – December 31, 2009
12
Contract Basis – 12/12 Incurred & Paid
• First year – eligible claims must be both incurred and paid within the
12-month benefit period
• Renewal year – converts to 24/12 basis
• Appropriate for plans coming from fully insured
First Year
January
December
CLAIM INCURRED
CLAIM PAID
Renewal Year
January
December
January
CLAIM INCURRED
CLAIM PAID
13
Contract Basis – 15/12 Run-in Contract
• First year – eligible claims incurred during the 12-month benefit period
or 3 months prior, and paid during the benefit period
• Renewal year – converts to 27/12 basis
• 18/12 and 24/12 contracts may be available – usually on business
incumbent with that producer
First Year
October
January
December
CLAIM INCURRED
CLAIM PAID
Renewal Year
October
January
December January
December
CLAIM INCURRED
CLAIM PAID
14
Contract Basis – 12/15 Run-out Contract
• First year – eligible claims incurred during the 12-month benefit period
and paid during the benefit period or the following 3 months
• Renewal years – renews on a 12/15 basis (12/18 and 12/24 contracts
are not generally offered)
• Could allow for gap in coverage unless contract has a “bridge” feature
First Year
January
December
March
December
CLAIM INCURRED
CLAIM PAID
BRIDGE FEATURE IF GROUP RENEWS
Renewal Year
January
December
March
CLAIM INCURRED
CLAIM PAID
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Stop Loss Product Options
Option
Benefit
Specific Advance
Reimbursement
Protects employers against unplanned cash flow drain by
“advancing” funds to the employer for an individual’s
incurred claims that exceed the specific deductible
Terminal Liability
Provides an additional period of coverage for claims
incurred while the agreement is in force but which are
paid during the selected period following termination
Aggregate
Monthly
Accommodation
Advances the employer for a dollar amount overage if the
year-to-date paid claims exceed the accumulated
monthly attachment point
Aggregating
Specific Option
Provides a cost saving feature to Specific Stop Loss.
This option is best suited for employers who can afford to
incur additional exposure in exchange for a reduced
Specific Stop Loss premium
Family Deductible
Option
Allows covered expenses incurred by all family members
to apply to one Specific Deductible
16
Stop Loss Underwriting
Underwriting – Specific Stop Loss
• Low incidence + high dollar claims =
manually underwritten coverage
• Requires a very large block of experience
to achieve predictability
• Rate tables may be purchased, derived from
carrier’s book or a blend of the two
• Set an appropriate deductible
• 5-10% of Expected claims
• 300 X (number of enrolled employees)
• Plan sponsor’s risk tolerance
18
Underwriting – Specific Stop Loss
Carriers take manual rates and apply their own
adjustment factors to weight elements
• Enrollment census
• Zip codes
• Industry
• Underlying plan design
• Use of managed care
• Inflation (aka medical trend)
• Contract adjustment (incurred, paid)
• Commission & carrier retention
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Leveraged Trend
This Year
Next Year
% Increase
$100,000
$110,000
10%
Deductible
50,000
50,000
0%
Specific
Claim
50,000
60,000
20%
This Year
Next Year
% Increase
$100,000
$110,000
10%
Deductible
50,000
55,000
10%
Specific
Claim
50,000
55,000
10%
Medical
Expense
The problem:
Medical
Expense
The solution:
20
Underwriting – Aggregate Stop Loss
• High incidence + low dollar claims =
experience underwritten coverage
• Projection is based on review of
historical claims and enrollment for
that group
• Typically requires 12-24 months
of data and 300 lives
– If not available, manual rates
may be used
• Calculate expected claims and
add plan sponsor reserve
– (aka corridor) to set
“attachment point”
21
Pricing – Aggregate Stop Loss
Monthly Aggregate
Factor x enrollment =
Monthly Attachment Point
Sum of the
Monthly Attachment Points
= Annual Aggregate
Attachment point
Aggregate Attachment
is a “soft dollar” cost
Aggregate premium =
5% of expected claims
22
Pricing – Stop Loss
10%
80%
Claim Fund
10%
Stop Loss premium
Admin
23
Risk Management Tools
Product
Aggregating
Specific Option
Advantages
Aggregating Specific is an additional
deductible, above the group’s
deductible, applicable to the entire
group (unlike a laser, which is
applicable to an individual)
• Lowers the premium when there are
known ongoing claimants
• Can be used in a competitive
situation to offer a lower premium
For example, a group could have
a $100,000 specific deductible and
an aggregating specific deductible
of $80,000. The stop loss carrier
would not reimburse any specific
claims until the claims over $100,000
on one or multiple claimants
exceeded $80,000
• Can encourage the employer to
take more risk without moving the
entire group to a higher deductible
• Privacy concerns, which occurs
when a laser is applied to a named
individual, are not a problem with
this coverage
24
Underwriting
Disclosure
• Purpose is to assess potential costs of medical
conditions so that an underwriter can effectively
evaluate the risk
• Based on ICD-9 Codes
“Laser”
Underwriting
• A laser is a higher specific deductible (than the
group specific deductible) issued for an
individual with a known, large, on-going claim
• Risk management tool to help offset a significant
premium increase
• Common on new business… some carriers will
also laser on renewal
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Claims
• Early Notification of Large Claims
• Oversight Case Management
– Role of Stop Loss
(nurses on staff)
• Specialty Networks
– Cancer
– Transplants
– Dialysis
– Specialty Pharmacy
• PPO Networks & Out of Network
Negotiation
26
Distribution
TPA / Self-Funded Distribution
Employer
Vendor Agreements
Administration
Agreement
Stop
Loss
Contract
Producer
TPA
PPO Network
Medical Case
Management
Utilization Review
Commission
Agreement
Stop Loss Carrier
Rx
Reinsurance
Agreement
Reinsurer
28
Distribution of Stop Loss Marketplace
3 Tiered Marketplace
Direct Writing Carriers
Managing General Underwriters (MGUs)
National Medical Carriers (BUCAs)
29
Direct Writing Carriers
• Retain the majority of the
Stop Loss risk
• Reinsurance may be used –
but in the background
• File and issue stop loss
contracts
on their own paper
• Complete claim paying
authority
• Usually do not offer Fully
Insured medical product
30
Managing General Underwriters
• MGU is an underwriting subcontractor –
not a risk taker
• May be dependent on multiple reinsurance
contracts – subject to annual renewals
• Dependent upon a “fronting” carrier to provide
the Stop Loss insurance contract. Fronting carrier
usually takes only a minimum share or the risk
• Limited claims paying authority
• Must coordinate with multiple vendors
31
National Medical Carriers
• Provide both the
administrative services and
the Stop Loss (Stop Loss can
also be outsourced to a stop
loss carrier/MGU)
• Usually do not work with
independent TPAs
• Offer traditional fully insured
and self-funded products
• Possible conflict of interest
32
Reinsurers
Provide quota share
or excess of loss
coverage over Stop
Loss carriers
and MGUs
Behind the scenes –
are not visible to the
policyholder
Unstable market –
reinsurers tend to
enter and exit the
market causing
capacity issues
33
Stop Loss Market
The Stop Loss Marketplace
• 36 million employees covered by
self-funded plans (approximately
55% of the total market)
• 58% of firms with 500+ employees
self-fund
• $6.0 – 7.0 billion Stop Loss market
– Direct Writers: $4 billion
– MGUs: $2 – 3 billion
35
General Market Trends
• Market continues to be soft; direct writers are trying to harden
prices, but MGUs are still very competitive
• Consolidation everywhere… Carriers, MGUs
and TPAs
• Some direct writers “at risk” due to their company structure
(i.e., financial services company as opposed to health insurance
company)
• Surge in large claims being experienced throughout the market…
Driven by premies and infections
• MGUs putting fees at risk (requirement of the reinsurer)
• Most companies working with specialty networks on claims
management
• Increase of fully insured carve out products to reduce self-insured
risk
• BUCAs taking market share from TPAs
36
Factors to Consider in Selecting a Carrier
• Stop Loss Contract
– Does it mirror the plan document
– Review all provisions, definitions,
exclusions & limitations
• Other Products / Services Available
– Specialty Networks
– Health & Well-being Services
– Carve-out Products
• Financial Ratings & Stability of the Company
• Length of Time in the Market / Reputation
• Underwriting & Product Flexibility
• Claims Reimbursement – Turnaround Times
37
Future of Stop Loss
What you can expect next:
• Hardening Market?
• Fewer Markets for Stop Loss
• More “Risk-Sharing” with Employers
• Increase Reporting to Reinsurers
for MGUs
• Encouragement to Use Specialty
Networks / Centers of Excellence
• Tighter Administration of Stop Loss
Contract
• Fewer Underwriters for Small Groups
38
Questions?
FSEDU0177Sv03NV ©2011

An Introduction to Stop Loss Coverage

Transcription

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