Self-Funding: Basic and Advanced Concepts Speaker: Dean M. Hoffman Self-Funding Renewal Strategy

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1 Self-Funding: Basic and Advanced Concepts Speaker: Dean M. Hoffman Self-Funding Renewal Strategy Case Study #1 - ABC Manufacturing, Inc. ~ Gleason, WI Case Study #1: CFO should demand from incumbent carrier de-identified individual large claim data with diagnosis/prognosis information, and threaten he ll cancel if he does not receive it; being de-identified the incumbent carrier can provide it. Of course the CFO should ask the incumbent if they can offer ASO/Stop Loss to compete against other TPA s that he may want to send an RFP. With that information, and with the overall total claims/enrollment information whose availability commenced after the 3 rd renewal, any MGU/reinsurer should be able to provide preliminary stop loss proposal pricing, with final firm pricing based on a completed Disclosure Statement. This would be the perfect situation for a change to a self-funded arrangement. Let us look at this if it were the 4 th renewal and if it were the 5 th renewal. While the employer is enjoying exceptional growth, managing all the working parts of an organization that is outgrowing every aspect of their business, facilities, payroll, staff, and benefits, they contemplated two scenarios. 4 th Renewal Only 9 or 10 months of claims data, the data would not be credible and not truly reflective of the risk. But, growth helps and the consultant and underwriter might want to consider: 1. 12/15 or 12/24 Contract for both Aggregate and Specific 2. $50,000 specific 3. Aggregating specific might be considered because of the lack large claim detail and the employer s desire keep fixed costs down as they grapple with the explosive growth. 4. Without any leadership buy-in on wellness it may not be realistic 5. If the current group insurance carrier had an ASO unit, they may be more inclined to retain use its own knowledge in the stop loss pricing 6. If they have the cash, now is the time to consider at Data Tool. 5 th Renewal Wait another year with 21 to 22 months of claims data, the data while not entirely credible it begins to reflect the risk of a young, growing firm /15 or 12/24Contract for both Aggregate and Specific 2. $50,000 specific

2 3. Local or national TPA with statewide network. 4. If there is support from leadership on wellness strategy, it would be good integrate one now as the companies employee retention rate is very high and the culture is beginning to solidify 5. If they have the cash, consider at Data Tool. Case Study #2 - XYZ Fabrication ~ West Allis, WI This is an aging employer group that lost many of its younger workers in the layoff Case Study #2: The account should request on their next renewal from the incumbent reinsurer and from any alternate reinsurers a quote for aggregate stop loss. Those reinsurers should have no problem offering it. If the CFO is getting cold feet about selffunding given the enrollment decline and average age increase, he definitely should purchase at next renewal the aggregate stop loss coverage at the normal 125% corridor, but also see if the reinsurers would be willing to quote a 120% or even 115% corridor. The CFO should also request from the reinsurers pricing for 24/15 coverage, as well as the 24/12, which then will make it easier for the account to change back to insured if they decide to do that. The CFO should also obtain fully insured quotes, just to be able to compare the total costs of ASO/stop loss with fully insured premium to have all the information needed to be able to make a financial decision, as it relates to the amount of risk tolerance the CFO has. Perhaps if the CFO decides to change to insured, he could see if the Insurer has a MPP plan or Retro plan where he could benefit from favorable claims experience he may have. 1. While the $150,000 specific is high, stop loss carriers, to include the incumbent stop loss carrier, may be reluctant to offer any lower 2. Ok with no Aggregate 3. While pricy, no exit strategy with 24/12, if the fabrication industry is such that they may have continued downturn a 24/15 would be great but a TLO may be something they might want to consider 4. Recommend a data tool, they are totally credible and now would be the time extract the last four years of data to make sure all vendor pieces are working well. There should not be a surprise on the large claims, that is insane 5. Large metro area, may have a narrow network option from one of the larger, competing health systems 6. Now is the time to take strong look at the Rx as well as consider a SpecialyRx carve out.

3 Case Study #3 - George s Implement, LLC Deerbrook, WI Since the consultant on the group may not have a great deal of experience in the selffund, a packaged approach may be warranted. Case Study #3: Consultant should obtain for the account ASO/Stop Loss quotes from both the instate TPA s and their stop loss markets and rental networks, and also from the local health plan with its in-house TPA department and its proprietary network. Presumably the local health plan has had its stop loss markets review its proprietary network provider discounts and should qualify for more competitive stop loss pricing vs. the reinsurers using rental networks with the other in-state TPA s. Since account is not super large, is only 125 employees, and has been insured, account should seriously consider ASO/Stop Loss only if it s recent renewals with the incumbent insurer have been favorable (low/moderate increases) reflecting favorable claims experience, and where the accounts actual claims experience ran more favorable than the insurer s manual claims experience. If the account has had recent high renewal increases due to unfavorable experience, this is probably not the time to consider self-funding. 1) 12/15 or 12/24 contract for both specific and aggregate 2) $40,000 to $50,000 specific 3) The highly managed local health plan has an ASO product, easier access to claims data and simplified start up for self-funding 4) Family run firm has great interest in wellness/lifestyle, now is the time to start a good three year strategy 5) DIT is great if they have the cash

4 Case Study #4 Ralph s Custom Builders, Inc. Brookfield, WI Large employer who has all the benefit tools and widgets known to mankind including a high end data integration tool Case Study #4: PPACA of course has forced them to change to an Unlimited Lifetime max on their renewal on and after 9/23/10, but they can retain annual maximums of $1.25 million for renewals on and after 9/23/11, and $2 million for renewals on and after 9/23/12, but for renewals on and after 9/23/13 can no longer have an annual max. Given the PPACA unlimited coverage requirements, even though they are at 11,000 employees and have state-of-the-art EPO network and CM/DM/UM, the account should at least review and consider having specific stop loss coverage, at a Deductible of either $500,000 or $600,000 or $750,000, or even $1 million. On a case of that size there should be reinsurers willing to quote those high spec deductibles. 1) Plan document is not compliant, needs to have an unlimited maximum 2) Consider a $250,000 12/15 specific

5 Case Study #5 Carl s Fishing Lures, Inc. New Post, WI Case Study #5: A $50,000 spec deductible is too low for this size account. The account can mitigate the renewal increase by increasing their deductible to more appropriate levels for this size account. The CFO should ask the incumbent to explain and justify their renewal increase, which they presumably would do with showing how the stop loss premium compares to the stop loss claims, increase in average age, family composition changes, leveraged trend, etc. If the CFO still disagrees, then he ll be able to see if it is justified or not by obtaining competitive quotes and see where the competition comes in vs. the incumbent. Regarding the lasered member CFO should demand from the incumbent TPA that they have provided to the reinsurer on that member the most current case management/nurse notes information reflecting the very latest claims and pharmacy information and activity. Again, competitive quotes will indicate if the laser is justified or not. The incumbent reinsurer may be willing to lower or remove the laser depending on what the competition offers. The competitive quotes may force the incumbent reinsurer to sharpen their pencil, or they may show the renewal and laser is indeed justified. 1) The current renewal is expected to be a 48/15 or True paid so having any large claims that were paid Medicare primary that are ultimately challenged may still have specific protection. 2) Transplant Carve out may be considered but will provide sleep at night effect on Carl 3) The DIT tool confirms that the case management vendors are all performing at optimal levels so the lasers may not be as bad as they appear.