Self-Funding: Stop Loss Contracts, Underwriting and Risk Transfer for Partially Self-Funded Plans

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1 Self-Funding: Stop Loss Contracts, Underwriting and Risk Transfer for Partially Self-Funded Plans Presented by Dean M. Hoffman Dean M. Hoffman, LLC March 28, 2018 San Francisco, California 1

2 Ground rules Questions as we go along Health Plan Acronyms IBNR and COBRA Evaluations 2

3 Today s Agenda Section Section name 1 What is Stop Loss Protection 2 Specific stop loss 3 Stop loss lasers 4 Aggregate stop loss 5 Stop loss contract types and variations 6 Underwriting and industry market review 7 COBRA rates simplified 8 Incurred But Not Reported (IBNR) 9 Stop Loss Disclosure and Application 10 Summary and Questions 3

4 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. 4

5 Employer protection Specific Medical Prescription drugs Aggregate Medical Prescription drugs Dental* Vision* Short-term disability* * optional 5

6 Specific stop loss topics Order A B C D Specific stop loss topics Role Guidelines Variations Leveraged trend 6

7 Specific stop loss role Represents the employer s 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 7

8 Specific stop loss role 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 $10,000 to $2,000,000 Specific stop loss level 8

9 Specific stop loss guidelines Number of covered employees Minimum per person Maximum per person $10,000 $50, $30,000 $75, $50,000 $125, $100,000 $200, $150,000 $250, $200,000 $2,000,000 9

10 Specific stop loss variations Traditional Split-funded Aggregating specific 10

11 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 Carrier liability Employer liability Employer liability Split funded maximum Specific stop loss level $10,000 to $2,000,000 11

12 Aggregating (accumulating) specific Assumptions $75,000 specific deductible $60,000 aggregating specific deductible 12

13 Aggregating (accumulating) specific 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 claimant Claim amount Specific stop level Applies to aggregating 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. 13

14 Stop loss 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 14

15 Deductible laser Ongoing condition estimate Specific deductible Added carrier exposure Laser amount New specific deductible $325,000 $50,000 $275,000 $275,000* $325,000 *Does not go toward aggregate 15

16 With or without laser features? Laser less stop loss contracts 5% to 7% load With first renewal rate cap Laser less stop loss contracts (new) 5% to 7% load 2 to 3 year rate cap Perpetual offer 16

17 Other laser styles Medical conditions Contract type laser 17

18 Other laser styles Specific Medical Condition dollar amount Franks Head Transplant Franks other large claim not excluded Contract type Franks Head Transplant is a 12/12 The rest of the participants are 24/12 Aggregating Laser Listing specific medical conditions i.e. Gastro Intestinal or Cancer treatment 18

19 Is a $10,000,000 claim possible? ACA Provision on Lifetime maximums o Allowable renewal on Lifetime Maximum o $750,000 9/23/2010 o $1,250,000 9/23/2011 o $2,000,000 9/23/2012 o Unlimited 9/23/2013 Self-funded employer plan Dependent child Hospitalized 6 months per year After 9/23/13 stop loss carrier lasered at $4,000,000 Aged out at 26 a year later Enrolled in Federally Facilitated Exchange 19

20 Aggregate stop loss topics Order A B C Name Role Guidelines Aggregate Projection 20

21 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, % Corridor (employer liability) Expected claims (employer liability) 130% Maximum aggregate attachment point 21

22 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 Specific claims not included 22

23 What is Corridor? The difference between expected claims and the aggregate deductible; this is the risk the employer is accepting in its selffunded plan 23

24 Specific and aggregate: Stop loss contract variations Traditional Paid True paid Gapless Mezzanine Family stop loss Level funded 24

25 Aggregate stop loss: expected claim calculation Paid claims for the period Trend factor Adjustments Average EE count for the period Expected claims Current EE count Corridor Attachment point 125% Corridor (employer liability) Expected claims (employer liability) 130% Maximum aggregate attachment point 25

26 Specific/Aggregate stop loss contract basis Contract terms 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 24/15 Incurred in 24; paid in 15 12/21 Incurred in 12; paid in 21 15/18 Incurred in 15; paid in 18 12/24 Incurred in 12; paid in 24 26

27 STOP LOSS Contract Illustration: COMMON YEAR 1 12/12 YEAR 1 Incurred claims Paid claims YEAR 2 15/12 YEAR 1 YEAR 2 Incurred claims Paid claims YEAR 3 15/12 YEAR 1 YEAR 2 YEAR 3 Incurred claims Paid claims 27

28 STOP LOSS contract illustration: RARE YEAR 1 12/12 YEAR 1 Incurred claims Paid claims YEAR 2 12/12 YEAR 1 YEAR 2 Incurred claims Paid claims YEAR 3 12/12 YEAR 1 YEAR 2 YEAR 3 Incurred claims Paid claims 28

29 STOP LOSS Contract Illustration: BETTER YEAR 1 12/12 YEAR 1 Incurred claims Paid claims YEAR 2 24/12 YEAR 1 YEAR 2 Incurred claims Paid claims YEAR 3 36/12 YEAR 1 YEAR 2 YEAR 3 Incurred claims Paid claims 29

30 STOP LOSS Contract illustration: BEST YEAR 1 12/15 YEAR 2 24/15 YEAR 1 Incurred claims Paid claims YEAR 1 YEAR 2 Incurred claims Paid claims YEAR 3 36/15 YEAR 1 YEAR 2 YEAR 3 Incurred claims Paid claims 30

31 Terminal Liability Option ~ Specific/Aggregate Provides 3 months of run-out 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 Triggered automatically upon non-renewal Does not apply to mid-term cancellations 31

32 Medicare prime vs. secondary If age 65+and covered by a group health plan; Less than 20 employees, Medicare is primary Employer has 20 or more employees then Group Health Plan is primary Medicare is secondary 32

33 Underwriting requirements Small Group 2-50 o No claims experience needed o Evidence of insurability required Paid claims (aggregate only) Two years paid claims by month Two years employee counts by month Large claims history (two years) Diagnosis Prognosis Ongoing conditions Manual rates 33

34 Stop loss underwriting Longer term relationships preferred No more than two carriers in five years May decline groups based on carrier history May load rates based on carrier history 34

35 Stop loss markets ASO/TPA preferred relationships TPA size does matter Stop carrier direct Managing General Underwriters (MGU) Preferred Underwriting authority Risk/Treaty share 35

36 It s renewal time Contract terms Renewal terms and conditions New TPA/ASO or carrier reporting Dollar Run-in limits Specific Aggregate Laser less renewal Perpetual offer The fine print 36

37 COBRA Rates simplified ABC Company Singles 60 Families 90 Total 150 $75,000 Specific Stop Loss Deductible, 24/12 Single $30.00 Family $84.00 Annual Premium $112,320 Fixed Cost Aggregate Stop Loss, 125% Corridor Attachment Point Factors Single $ Family $1, Attachment Point $1,687,496 Expected Claims $1,349,997 Variable Cost Aggregate Stop Loss Premium PEPM $6.50 $11,700 Fixed Cost Annual Premium ASO Fees Total PEPM $32.00 Annual Fee Revenue $57,600 Fixed Cost Total Maximum Cost $1,869,116 Total Expected Cost $1,531,617 Premium Cobra Equivalent Rates +2% Rates Single $ $ Family $1, $1, Annual Funding $1,531,617 37

38 Incurred But Not Reported (IBNR) Incurred Claim Liability (Run out) Actuarial process Large know claims Population changes Benefit changes Network discount change Seasonality Case management notes and activity 38

39 Stop Loss disclosure and application Excess Loss Disclosure Statement Preliminary Excess Loss Insurance Application 39

40 Summary and Questions? ~Evaluations~ Dean M. Hoffman, LLC Mobile: