Self-funding 202: Advanced Concepts

Transcription

1 Self-funding 202: Advanced Concepts March 20, 2012 Dean M. Hoffman

2 Self-funding 202 agenda Self-funded models third party administration (TPA) administration Services Only (ASO) Stop loss protection Specific contract types Aggregate contract types

3 Self-funding 202 agenda Self-funding under PPACA Small group self-funding Group stop loss captives Stop loss lasers Leveraged trend Final exam

4 What is self-funding? Employer sets up fund to pay claims, usually through the services of a TPA or a ASO vendor Employer designs its own benefit plan Stop loss protection for abnormal risks

5 Self-funded models Proprietary model Administrative services only (ASO) Unbundled model Third party administrator (TPA) Unbundled model TPA with coordinated care

6 Typical self-funded model Employer Pays group Contributions TPA or ASO Stop loss protection Provider Network Prescription drug Utilization review Refunds claims beyond limits Claim account Stop loss Health care providers Pays claims Interest income SpecialtyRx and Dialysis Carve Outs Disease and case management Lifestyle/Wellness plans Patient advocacy Transplant carve out Data integration tools Emergency evacuation and repatriation

7 What is stop loss? Specific coverage Insures the employer against a catastrophic loss incurred by one individual over a certain dollar limit. Example: transplants, leukemia, premature birth Aggregate coverage Insures the employer against unusually high overall claim levels for the entire covered group, due to high frequency or an unexpected number of large, catastrophic claims. Aggregate generally consists of ordinary claims well care, colds, flu, prescription drugs, vision, etc. Only claims below the specific deductible on covered individuals are eligible.

8 Stop loss protection Employer protection includes: Specific Aggregate Medical Medical Prescription drugs Prescription drugs Dental* Vision* Short-term disability* *optional

9 Specific stop loss Role Guidelines Contract types Terminal liability

10 Specific stop loss role Represents the employers risk assumption Generally represents the individual plan participant s cost to the plan Defines the liability level of the stop loss arrangement Set at a level to provide appropriate protection for the employer, while allowing the employer to participate in the risk of the plan Must be set at a level to provide adequate protection for the aggregate attachment point

11 Specific stop loss Coverage on the individual claim All eligible claims in excess of the individual stop loss level are reimbursed by the carrier. All eligible claims below the individual stop loss level are the responsibility of the employer. Lifetime maximum Unlimited on plan date after 9/23/10 Carrier liability Employer liability $50,000 $75,000 (employer pays for each individual) $100,000 Specific stop loss level

12 Specific stop loss guidelines Number of covered employees Minimum per person Maximum per person $30,000 $75, $50,000 $125, $100,000 $200, $150,000 $250, $200,000 $500,000

13 Specific stop loss contract basis Contract basis 1 st year Description 12/12 Incurred in 12; Paid in 12 12/15 Incurred in 12; Paid in 15 15/12 Incurred in 15; Paid in 12 24/12 Incurred in 24; Paid in 12 12/24 Incurred in 12; Paid in 24

14 Specific stop loss contract basis renewal Contract basis 1 st year Description 12/12 Incurred in 12; Paid in 12 12/15 Incurred in 12; Paid in 15 15/12 Incurred in 15; Paid in 12 12/24 Incurred in 12; Paid in 24 Contract basis 2 nd year 24/12 or 15/12 12/15 24/12 or 15/12 12/24

15 Specific stop loss contract illustration Common Year 1 12/12 Year 2 15/12 Year 3 15/12 Year 1 Incurred claims Paid claims Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

16 Specific stop loss contract illustration Better Year 1 12/12 Year 2 24/12 Year 3 36/12 Year 1 Incurred claims Paid claims Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

17 Specific stop loss contract illustration Best Year 1 12/15 Year 2 24/15 Year 3 36/15 Year 1 Incurred claims Paid claims Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

18 Specific stop loss contract illustration Even better Year 1 DOSR Year 2 DOSR Year 3 DOSR Year 1 Incurred claims Paid claims Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

19 Specific stop loss terminal liability option Terminal liability option provides 3 months of runout coverage Offered with contract types 15/12 24/12 18/12 36/12 Covers all claims incurred during a policy period and paid during a 3 month run-out period Must be elected on the original effective date or beginning of contract period Plan sponsor must be returning to a fully-insured Increased premium cost

20 Specific stop loss variations 1. Traditional 2. Split funded 3. Aggregating specific

21 Split funded specific stop loss All eligible claims in excess of the split funded maximum are reimbursed by the carrier. All eligible claims over the specific stop loss level are shared 50/50, 60/40 or 75/25 between employer and carrier All eligible claims below the individual stop loss level are the responsibility of the employer Lifetime maximum Unlimited on plan date after 9/23/10 Carrier liability $50,000 Carrier liability Employer liability Employer liability (employer pays for each individual) $100,000 $75,000 Split funded maximum Specific stop loss level

22 Aggregating specific stop loss Assumptions $75,000 specific deductible $60,000 aggregating specific deductible

23 Aggregating specific deductible: meeting with one claim One claim over $135,000 Employer meets the aggregating specific deductible through: $ 75,000 Specific deductible $ 60,000 Aggregating specific deductible $135,000 Employer payment on claim, aggregating specific deductible is fully satisfied Result: Stop loss carrier pays anything over $135,000 on this claim. Now that the aggregating specific deductible had been met, the employer only pays up to $75,000 (the specific) on any new single claim the carrier covers the rest.

24 Aggregating specific deductible: meeting with several claims Three claims, each with totals over the specific deductible Subtract the specific deductible from each bill. Apply the remainder to the aggregating deductible until it is satisfied (up to $60,000 in this example). Medical Applies to Claim Specific stop claiman amount aggregating level t specific Bob $ 80,000 - $75,000 = $ 5,000 Sue $100,000 - $75,000 = $25,000 Tom $120,000 - $75,000 = $45,000 Total $75,000 Result: Since the aggregating specific deductible is only $60,000, carrier pays $15,000 of Tom s bill. Since the aggregating specific deductible is met, carrier payments begin on all new claims as soon as the specific deductible ($75,000) is satisfied.

25 Aggregate stop loss Role Contract types Terminal liability

26 Aggregate stop loss role Protects the employer from significant variation in the claims experience Aggregate coverage protects against utilization risk Specific coverage protects against catastrophic risk

27 Aggregate stop loss Cap on claims liability for whole group Expected claim cost is established Aggregate is a percentage of expected claim cost Eligible claims exceeding aggregate stop loss level are reimbursed by carrier Maximum payment $1,000,000 10% 20% 25% Corridor (employer liability) 40% 30% 50% Maximum aggregate attachment point 100% Expected claims (employer liability)

28 Aggregate stop loss: Corridor defined The difference between expected claims and the aggregate deductible. This is the risk the employer is accepting in its self-funded plan.

29 Aggregate stop loss contract illustration Common Year 1 12/12 Year 2 15/12 Year 3 15/12 Year 1 Incurred claims Paid claims Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

30 Aggregate stop loss contract illustration Better Year 1 12/12 Year 2 24/12 Year 3 36/12 Year 1 Incurred claims Paid claims Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

31 Aggregate stop loss contract illustration Best Year 1 12/15 Year 2 24/15 Year 3 36/15 Year 1 Incurred claims Paid claims Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

32 Aggregate stop loss contract illustration Even better Year 1 DOSR Year 1 Incurred claims Paid claims Year 2 DOSR Year 3 DOSR Year 1 Year 2 Incurred claims Paid claims Year 1 Year 2 Year 3 Incurred claims Paid claims

33 Aggregate stop loss terminal liability option Provides 3 months of paid claims run-out protection for those claims incurred during the current policy period before termination Must be purchased up front Triggered automatically upon non-renewal Does not apply to mid-term cancellations

34 Aggregate stop loss expected claims calculation Step 1 Step 2 X Step 3 X Step 4 \ Step 5 X Step 6 X Step 7 = Paid claims for the period Trend factor Adjustments Average EE count for the period Current EE count Corridor Attachment point = Expected claims

35 Self-funded exemptions under PPACA 1. To provide coverage with minimum essential benefits 2. To participate in modified community rating riskadjustment system 3. To meet medical loss ratio requirements 4. To have premium increases reviewed and potentially disapproved by state and/or federal government agencies 5. To pay the HHS-calculated annual tax to which health insurers are subject starting in 2014

36 Small group self-funding Traditional aggregate/specific Maximum funded or controlled aggregate

37 Small group self-funding Advantages Claims data not required Flexibility of plan design Escape some state premium tax Avoid state mandates Level cash flow Possible surplus refund PPACA exemptions

38 Small group self-funding Disadvantages Full funding requirement Higher fixed cost component May not have hard run out Banking requirements may be cumbersome

39 Captive insurance companies Who should consider a captive? Smaller groups become part of larger credible pool Good historical claims experience Partnership with wellness-minded employers Loss of commercial markets Risk retention and risk tolerance Captive project leadership Must be willing to commit to a 3-year contract

40 How a captive works Captive layer aggregate The captive layer has additional insurance protection over the overall medical claims. If the overall exceeds 125% of expected for the captive, then each employer is further protected. Captive layer Once an individual claim exceeds $25,001, the claim would be reimbursable under the captive layer up to $250,000, with all employers pooled together, Self-insured retention level Each employer purchases an individual stop loss policy at their risk comfort or all employers get the same. $250,001 - Unlimited $25,001 to $250,000 $0 to $25,000

41 Types of captives 1. Single captives 2. Group captives 3. Rent a captive

42 Lasers Carve out specific risks within the stop loss contract Increase employers liability on specific risks Reduce carriers liability on specific risks Common to place lasers on new business Routinely used on renewal

43 Deductible laser Ongoing condition estimate $120,000 Specific deductible $ 50,000 Added carrier exposure $ 70,000 Laser amount $ 70,000* New specific deductible $120,000 *Does not go toward aggregate

44 Other laser styles Medical conditions Contract type laser

45 Leverage trend components Medical inflation + deductible erosion = leveraged trend

46 Leveraged trend Year one XYZ Manufacturing, Inc. $75,000 specific $100,000 claim $25,000 $75,000 $100,000 Stop loss claim Employer share Year two: 10% trend $100,000 becomes $110,000 Specific remains at $75,000 Stop loss claim becomes $35,000 10% trend produces a 40% increase in specific claim payment $35,000 $75,000 $110,000 Stop loss claim Employer share

47 Leveraged trend Year three: 15% trend $126,500 $110,000 becomes $126,500 Specific remains at $75,000 Stop loss claim becomes $51,500 15% produces another 47% increase in specific claim payment In two years, leveraged trend is 106% $51,500 $75,000 Stop loss claim Employer share

48 Leveraged trend If in year 2 the employer increases the specific to $80,000 then: Trend 10% $100,000 becomes $110,000 Specific is $80,000 10% trend produces a 20% increase in specific claim payment The trend increase in deductible produces a trend increase in the stop loss claim $110,000 Stop loss claim $30,000 Employer share $80,000

49 Test time Scenario 1: 12/15 contract type An employer renews a 12/15 contract with an effective date of 1/1/2006 Two claims are submitted with service dates of 12/30/2006 Claim A was paid by the TPA/ASO on 3/30/2007 Claim B was paid by the TPA/ASO on 4/1/2007 Question 1: How would the claims be adjudicated?

50 Test time Scenario 2: 12/12 contract type renews to a 24/12 An employer renews with a stop loss carrier on 1/1/2006 and purchases a 24/12 contract. The original effective date of the coverage is 1/1/2005 (12/12 contract). Two claims in excess of the specific are submitted for payment. Claim A has a service date of 9/1/2005. Claim B has a service date of 12/1/2004. Question 2: How are these claims adjudicated?

51 Questions? Dean M. Hoffman Phone: