Stop Loss 101. The basics of self-funded insurance

Transcription

1 Stop Loss 101 The basics of self-funded insurance

2 Objectives At the end of this presentation, you should be able to answer the following questions: What is self-funding? What are its advantages? What are key considerations before self-funding? How does self-funding work (basic level)? What is Employer Stop Loss coverage?

3 What is self-funding? An alternative to traditional health insurance in which an employer pays its own claims Administrative functions are often delegated to a third-party administrator (TPA) or an insurer Stop loss insurance helps an employer manage its exposure to catastrophic claims Governed by ERISA (Employee Retirement Income Security Act, 1974) Exempts most self-funded plans from state regulation, including premium taxes and mandated benefits

4 The Risk Continuum Fully-Insured Plans Retrospective Premium Agreements 100% Risk Transfer Minimum Premium Accounts Self-Funded ASO with Stop Loss Insurance Pure SelfFunding (ASO) No Risk Transfer

5 Advantages of Self-Funding Employer (or group) controls the plan not the insurer Employer (or group) can take advantage of good medical/claims experience Can lead to more effective cost control Flexible health plan design Eliminates most state premium taxes (~2-3%)

6 Advantages of Self-Funding May help cash flow Claims paid as incurred, eliminating pre-funding or up-front reserve payments Employer holds reserves; receives interest benefit. Not subject to insurers risk charges and profit margins Can purchase stop loss insurance to increase predictability and reduce exposure to catastrophic claims

7 Key Considerations Level of risk tolerance Cash flow limitations Unpredictability/poor experience Exposure of assets Comingling of assets (General Asset Plan) 501(c)(9) trust Fiduciary responsibility Risk suitability

8 How Stop Loss Fits Self-funding does not require stop loss Stop loss is simply the vehicle used to help a self-funded plan manage the risk Stop loss involves an insurance agreement between the employer/plan sponsor and the insurer The employer/plan sponsor is the insured The individual/participant is NOT the insured The employer must fulfill its obligation to pay claims regardless of whether stop loss is in place

9 How Stop Loss Fits Fully Insured Self-Funded Employee Employee Employer Employer Stop Loss

10 Forms of Stop Loss Coverage Traditional approach Specific Mitigates risks on individuals Stop loss insurer reimburses employer for claims after individual s deductible is met* Aggregate Mitigates risks on the group Stop loss insurer reimburses employer for claims after group s deductible is met* Specific and aggregate work together Aggregate Only with level funding Self-funded option for small employers Provides predictable cash flow *Terms of reimbursements defined by plan document. 10

11 Example: Specific Coverage $400,000 $350,000 $300,000 $250,000 $175,000 $237,500 Stop Loss Carrier s Risk $200,000 $150,000 $100,000 $50,000 $0 $55,000 $95,000 Claimant A Claimant B Claimant C Claimant D Specific Deductible ($100,000) Employer s Risk

12 Specific Coverage: Deductible Consideration for determining appropriate deductible Risk factor i.e. the relationship between the specific amount and the expected paid claims 5-15% of expected paid claims Group size Employer risk tolerance

13 Specific Coverage: Rate Calculation Based on actuarial data and individual group characteristics (aka manual rate) Geographic location Industry Demographic (age/gender) Deductible level Managed care network Manual rate is adjusted for: Claim history Anticipated large claims Changes to the plan

14 Example: Aggregate Coverage $2,250,000 $2,000,000 Stop Loss Carrier s Risk $1,750,000 $1,500,000 $1,250,000 $1,000,000 { MARGIN 125% $1,250,000 Attachment Point (125% of $1,000,000) $1,000,000 Expected Claims $750,000 $500,000 $250,000 $0 Employer s Risk Group Claims

15 Aggregate Coverage Offered at 125% of expected claims May include Rx, dental, vision Not sold alone Does not provide catastrophic coverage Specific coverage protects the aggregate

16 Aggregate Coverage: Attachment Point Manual rating is combined (blended) with group s claim experience Depends on amount of credible experience available Total is considered expected claims The underwriter adds a corridor, or margin Limits the frequency and severity of expected claims Industry standard is 25% Aggregate attachment point = expected claims + the corridor By design, groups should not have aggregate claims, except in volatile years (large changes in payment patterns or utilization)

17 Aggregate Coverage: Attachment Point How to calculate: Paid claims for policy period - Specific claim reimbursements = Net paid claims X Trend factor X Plan adjustments X Contract adjustment X Corridor (usually 125%) = Final experience composite Aggregate attachment point blends experience and manual composite * number of employees.

18 Aggregate Coverage: Maximums Standard annual limit is $1,000,000 This is independent of the specific stop loss maximum Maximum reimbursement = (expected claims * 25% corridor) + $1,000,000

19 Aggregate Only with Level Funding: How It Works A stop loss proposal is generated There is no Specific deductible Includes premium and funding factors Employer remits fixed monthly payment Includes stop loss and administration fees Based on number of employees Funding factors are deposited into benefit account and used to pay claims When claims exceed benefit account balance, reimbursement is issued Funding is reconciled to paid claims at year end If funding > claims paid, plan retains the balance 19

20 20 Sample Proposal

21 Example: annual claims less than funding $25,000 $20,000 $15,000 $10,000 $5,000 $- Monthly funding: $ 20,000 Annual funding: $240,000 Annual claims: $222,000 Employer retains: $18,000 21

22 Example: annual claims exceed funding $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $- Monthly funding: $ 20,000 Annual funding: $240,000 Annual claims: $251,000 Summit Re reimburses: $11,000 22

23 Advantages of Aggregate Only with Level Funding An option for small employers interested in transitioning to self funding Budget stability Monthly cost per employee remains fixed regardless of claim activity Immediate funding Rating based on your specific population Favorable claims experience is retained by the plan 23

24 Stop Loss Definitions Fixed costs Specific premium Aggregate premium Admin fees (TPA, PPO network, UR, etc.) Variable costs Expected claims Total cost Fixed + variable Maximum costs Fixed Attachment point (expected claims + corridor)

25 Stop Loss Definitions Paid Funds actually disbursed by the contract holder or its agent The unconditional and direct payment of a claim to a covered person or his health care provider(s) Payment is deemed to be made on the date that both The payor directly tenders payment by mailing or otherwise delivering a draft or check, AND The account upon which the payment is drawn contains sufficient funds for the draft or check to be honored Incurred The date on which medical care, service, or supply is provided to a covered person for which a charge results

26 Contract Example: 12/15 1/1/17 12/31/17 3/31/18 Incurred (date service was rendered) Paid (date claim paid by administrator) Claims incurred in 12 months and paid in 15. Eligible claims must be incurred during the 12-month contract period and paid within the contract period or the three months immediately following. Abbreviated version of true incurred contract. Variations include 12/18 and 12/24.

27 Contract Example: 12/12 Contract 1/1/17 12/31/17 Incurred (date service was rendered) Paid (date claim paid by administrator) Eligible claims must be incurred AND paid within the contract period. For renewal years, the contract will convert to a paid contract and claims will be eligible under the renewal contract regardless of date incurred, as long as they were incurred on/after the initial contract effective date. Appropriate first-year contract type for a group that is currently fullyinsured or one that has a self-funded policy with a run-out provision.

28 Contract Example: Paid Contract 1/1/17 12/31/17 Incurred (date service was rendered) Paid (date claim paid by administrator) On renewal, a 12/12 or 15/12 contract becomes a paid contract. Claims will be eligible under the renewal contract regardless of the date incurred, as long as they were incurred on/after the effective date of the original contract. Appropriate for renewals that were initially 12/12 or 15/12 contracts.

29 Contract Example: 15/12 10/1/16 1/1/17 12/31/17 Incurred (date service was rendered) Paid (date claim paid by administrator) Called a run-in. Claims incurred up to 90 days before the effective date and paid during the first contract period will be eligible under the policy. Reverts to a paid contract for renewal years. Appropriate for a group that is currently self-funded with no run-out provision, but is new to the carrier.

30 Carrier Selection: Key Considerations Financial strength Stop loss policy Claims efficiency Underwriting philosophy Product options Access to resources Competitive rates and terms

31 RFP Process Initial Screening Rate Calculation Underwriting Quote Follow-up Review for complete submission Enter group demo, census data, and benefit plan info into rating system System calculates manual rate Information sent to underwriter Review case data Review claims experience, incl. large claim detail* Enter data into rating system to calculate rates and loss fund factors Prepare quote * May route to RN medical management team to review/estimate potential large claims

32 RFP Submission Requirements Employer data Business name, location, and number of employees at each Type of industry (SIC code) Current census (Excel preferred) Employer coverage history (last 3 years) Current carrier or HMO Schedule of benefits Rate history Paid claims and enrollment Large claims info Requested coverage Contract type Specific deductibles Aggregate margin Complete plan of benefits Managed care network (PPO) Proposed effective date Commission level Due date of quote

33 Key Stop Loss Terms ASO Administrative Services Only. A term used by carriers and HMOs to designate their services to selffunded employers. Census Collected detail of an employer s member population, including number of covered lives, coverage status, sex, DOB, and other demographic information. Corridor The margin or cushion an underwriter includes to limit the frequency and severity of aggregate claims. ERISA Employee Retirement Income Security Act of Experience Detail of actual claims paid during a specified time period for a particular employer group s covered members.

34 Key Stop Loss Terms Fiduciary Any party with discretionary authority or responsibility for the management or administration of a plan. Fixed cost All firm dollar costs of a self-funded plan. Includes specific premium, aggregate premium, admin fees, etc. Also known as hard dollars. MCO Managed Care Organization. Plan document Document which details the terms and provisions of a plan s coverage. Self-funding Self-insurance. Soft dollars Claim costs, which are variable though often capped. AKA claim liability or attachment point. TPA Third Party Administrator.

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