Self-insuring your employee health benefit plan not only brings upfront cost savings, tax benefits and avoidance of state mandates, but it also provides a foundation for you to achieve sustainable cost management using better control and visibility.
To help minimize the risk of unsupportable losses such as catastrophic medical claims or higher utilization, you can purchase stop loss insurance.
Stop-loss insurance will provide the necessary protection by serving as a reimbursement mechanism for catastrophic claims exceeding pre-defined levels.
Typically, there are two types of coverages in stop loss insurance.
This coverage provides a protection against a high claim on any one individual and reimburses you when claims for an individual exceed a specific deductible. Deductibles can vary from $25K to $500K depending upon your size and risk tolerance.
This coverage provides a limit on the amount of eligible expenses that you would pay, in total, during a contract period. This coverage starts when total claims reach a certain amount or threshold.
This makes stop loss insurance policy as one the most important documents in self-funding. Understanding the factors given below may go a long way in negotiating a better contract, and avoiding end-year surprises.
Factor 1 : Check Carrier’s Background
Determine the carrier’s A.M. Best rating. A.M. Best is the oldest and most commonly used rating agency. The ratings represent an independent opinion of the carrier’s financial strength and ability to pay claims.
The top ratings are A++ and A+.
Also check how long they have been in the market and what is their financial size.
Factor 2: Unlimited coverage under ACA
Under ACA, the plan must provide unlimited coverage per year and employers are prohibited to cap lifetime limits for ‘essential health benefits’.
That means that if any employee develops a chronic condition, you’d be responsible for paying all claims and can’t limit the coverage or the amount.
That also means that your stop loss agreements should include the coverage that provide unlimited benefits to support your obligations under the healthcare reform.
Factor 3: Maintain consistency with your plan document
Your health plan document defines the benefits offered to the employees and their families and is critical in determining liability under the stop-loss coverage. As a self-insured employer, you have a lot of flexibility in designing the plan, however there may be elements in the document that are not included under the stop-loss coverage.
For example, some stop loss carriers have policy language that exclude reimbursement for certain claims (usually transplants). If you miss this, this can potentially create a significant liability for you.
You should get the gap analysis document for approval from the broker/TPA highlighting the gaps between stop-loss agreement and your health plan. If any changes are made on the plan document, the gap analysis document should be updated for review.
Factor 4: Check the covered expenses
All covered expenses need to pass two tests before these are considered for reimbursement by the carrier-
- The expense is eligible under your health benefit plan and is approved.
- The expense is covered under the loss definition of the stop-loss agreement.
Typically, medical and Rx expenses are covered in the specific coverage. Dental, vision and other admin expense including disease management services are excluded.
The aggregate coverage, however may cover medical, Rx, dental and vision. However, it is typically reimbursed after the corridor, which us typically between 20%-30%.
Factor 5: Compliance with state laws
Self-funded plans are governed by ERISA, and state laws are preempted. However, stop loss policies are covered by state insurance laws.
States have taken different approaches to the regulation of stop loss insurance and it is important to understand how stop loss insurance functions from a regulatory perspective.
Many states set thresholds for stop loss attachment points, and some states require stop-loss to offer run-out coverage (typically coverage after 12 months).
Factor 6: Negotiate stop loss maximums
Typically, the specific lifetime maximum is $1,000,000. You can negotiate a higher lifetime maximum by paying an additional premium.
Some Reinsurers will give you a $500,000 lifetime maximum. Increasing the lifetime maximum to $1 million or $2 million is quite cheap. So go for a higher limit.
Factor 7 : Understand the types of contracts
Eligible claims are incurred and paid within the policy period (months from the initial effective date of the plan).
Eligible claims are incurred during the contract period (12 months) and paid within the contract period or the three months immediately following (15 months from the initial effective date of the plan).
Typically a renewal contract, this covers all eligible claims regardless of the date incurred on or after the initial effective date of your self-funded plan.
Eligible claims incurred up to 90 days before the effective date and paid during the contract period.
Factor 8: No “Lasers”
It is illegal for employers to terminate an individual’s health coverage on the based on his/her sickness. Some stop loss reinsurers are always looking to exclude such individuals. This tactic, called “Lasering” can leave you or your employees liable for those medical benefits.
Make sure that there is no “laser” in the agreement. It undermines the principal behind stop-loss coverage.
Factor 9: Check the reimbursement period and cancellation policy
You want to avoid wide fluctuations on a monthly basis, so it is important that your stop loss agreement support this. Typically, you should look at 1-2 weeks time for reimbursement on specific claims and 4-6 weeks for aggregate claim (if paid annually).
Also check the cancellation policy and ask for at least 4 months of cancellation and/or renewal notice.
Factor 10 : Accommodation
Ask for accomodation in both specific and aggregate. This will make the reinsured paying claims immediately after you have satisfied the specific deductible rather that at month end.
If you are concerned about having a set monthly budget, you can opt for monthly accommodation, where the reinsurer can provide an advance amount over the specific set deductible. If at the end of the year you did not hit your annual aggregate attachment point, you would refund any advanced amounts to the reinsurer.
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