The number one concern I hear from employers when we talk about migrating to a self-insured or partially self-insured environment, is that they don’t want to be responsible for all the claims.
What is stop-loss coverage?
Stop-loss or reinsurance is how you protect yourself from large claims if you are self-insured. You should always have reinsurance. What you may not realize, is that if you’re fully insured, you already have stop-loss coverage, or reinsurance; it’s built into your premium and it benefits the insurance carrier. You just don’t see it.
To be clear, stop-loss is not health insurance, and it’s rated in a completely different manner. Stop-loss is designed to protect you, the employer, from any large claims incurred by your employees. Stop-loss should not be considered a commodity. As with most things, there are high quality providers, and there are the low-quality providers.
What goes into a solid and reliable stop-loss/reinsurance quote?
First, you should have a complete census of all your employees, which you should be able to pull out of your payroll system. Next, you will need your current benefits guide or something that depicts what the current benefits are. Then, you’re going to need your monthly claims and large claimants’ detail for the past three years, as well as any narrative to help fill in the gaps. And there are always gaps.
Data, or lack of access to data, has often been the stumbling block for smaller, under 250 life, employers. Access to data is no longer an acceptable excuse. We have tools to help identify and assess claims, even if you are fully insured.
Back to the gaps….
Let’s say that among your employee population, there are a large number (25) of people with diabetes. There is a very big underwriting difference between having 25 people who have diabetes on your plan who have all their numbers in normal ranges and those who do not. Employees that take their medication regularly, have their numbers in a consistently normal range; those that are getting their preventive care (all of it!), will cost your plan a little bit of money, but not very much.
This is a completely different underwriting risk than a group that has 25 employees with diabetes, some of which may be taking their medication and some that don’t even know they have diabetes. You may see from the claims some things that indicate that they have diabetes, such as an amputated toe, or a foot ulcer, and you may have no idea what’s going on with the other 10 that we haven’t mentioned. That is a completely different risk… and will result in a different underwriting result.
It is worth your time to make sure you’re in category one and not category two; this shouldn’t sound too unfamiliar. This is the same kind of rating structure that workers’ comp uses…. Better safety practices and procedures lead to a better underwriting experience. Of course, it’s not identical, but it’s a good comparison.
What to look for in a quote
There are items that you will want to pay specific attention to when you are reviewing the quote. And, make sure that you do receive a quote, rather than just the summary. The actual quote will have all the information you need: all the credits, decrements, and all of the compensation included. Both the broker and the TPA can receive compensation on a Stop-Loss quote. This isn’t inherently bad, but you do have the right two know about it!
These are the items you need to review:
- • Gaps in coverage
- • Specific advancement
- • Specific limitations & exclusions
- • Run in limits
- • Terminal liability
- • Renewal class and confirmation
- • Self-funded or self-insured
When looking at your quote, you’ll want to notice any gaps in coverage. For instance, do the contracts match your current contract? Do they mention specific advancement? For example, if you have someone that surpasses the specific deductible (i.e. $40,000, $50,000 or $75,000 for example),you’ll want to make sure that you’re reimbursed for any overages in a timely fashion and not at the end of the plan year. You will want to see what the lasers are or the specific limitations and exclusions for any high cost claimants. You will want to know what the run-in limits are for both the specific and the aggregate, and you will want to make sure that there is an option for terminal liability if you think you might need that.
You’ll also want to see if there are new lasers. Sometimes it’s okay (not great), however, you’ll want to know that. And, you’ll want to know if there is a guaranteed renewal. You’ll need confirmation that the stop-loss policy wraps the plan document in a self-funded plan or self-insured plan. The plan document supersedes your benefits guide. Your stop-loss policy has to match what your plan document says, to avoid any problem further down the road.
Reinsurance contract options
It’s important to ensure that the contract meets your needs. Reinsurance comes in a few flavors. The basic 12-12 means that your contract starts on June 1st, and it runs to May 31st the following year. The stop-loss covers claims incurred in that time frame, which may not work for everybody.
Typically, you’ll see an employer choose either a run-in contract or a run-out contract. The run-in contract comes in the form of a 15-12, 18-12, or 24-12. What that means is that the policy covers claims from day one (e.g. June 1st), but it also covers claims from the past 3, 6, or 12 months. A run-out contract is just the reverse. The flavors are 12-15, 12-18, and 12-24. So, it covers claims from the first date of policy inception (e.g. June 1st), and then extends for 3, 6, or 12 months.
There are many options to suit the needs of different employers.
Finally, you may want to consider terminal liability. Terminal liability is purchased at the time you purchase the stop loss contract. It is your protection if you cannot fulfill the duties of your plan financially.
The most important aspect of underwriting a stop-loss contractor or re-insurance contract is accuracy and detail of information. For example, employer disclosures need to be signed by the TPA, the employer, and the broker. The data needs to be accurate, otherwise you can encounter unnecessary issues further down the road. Data is easier and easier to get. Sometimes you may have to ask a few times, but it’s easier to get today than ever before.
If you have trouble getting data, let us know… we have solutions for that!
This is the map for how you contain your costs…. just like in every other area of your business. Inputs determine outputs. The same goes for your stop-loss, policy. So, don’t let anybody tell you that these documents are just a formality. They’re the basis of your plan and you will live and die by what they say.