stop loss 201

1

Stop Loss 201

Date, Presenter

2Confidential, unpublished property of CIGNA. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2008 CIGNA

Welcome to Stop Loss 201

Important Reminders Before We Begin

Thank you for coming!

Please sign roster now, and fill out all informationThis is the Stop Loss 201 course for two creditsYou must be present for entire course to earn creditsSales and Internal Company Procedures cannot be used for CE credit Here is the course outlineLet’s begin!


Presented By:

Title

Experience

Education/License

Stop Loss 201


STOP LOSS 201 - AGENDA Stop Loss Review

– Why Do Customers Need Stop Loss?– Stop Loss Products– Marketplace Review– Firm vs. Contingent Quote– Value of Integration – Premium Stop Loss Products

Trend– Catastrophic Trend– Major Stop Loss Drivers– Leveraged Trend and Differences by Pooling Level– Suggested Pooling Levels

Volatility– Capital Requirements– Years Between the BIG Claim– Credibility– Experience Rated vs. Pooled Methodology

Conclusion and Case Study


Stop Loss Customers Include:

Self-insured (ASO), mid-sized customers Customers moving from insured to ASO plans National account customers who are risk averse or have smaller cost centers structured under the parent company

What do Stop Loss products provide?

“Sleep insurance” Protection from the impact of high dollar claims on their cash flow & experience A level of predictability for medical claim expenditures

Why Stop Loss

Why Stop Loss


Individual Stop Loss (ISL) Definition/Concepts

Written with ASO plans in conjunction with an underlying medical plan Protects an employer’s financial resources from large claims on any one

individual. Customer’s liability is capped at a certain dollar amount on each individual

per policy year. Amounts below the pooling point are the customer’s liability Amounts above the pooling point are the Carrier’s liability Claims over the pooling point for an individual member are removed

from the customer’s experience & paid by the stop loss pool.

Pooling Point: $100,000

Total Claims Customer Liability Stop Loss Carrier Liability

Individual 1 $150,000 $100,000 $50,000

Individual 2 $1,000,000 $100,000 $900,000

Individual 3 $275,000 $100,000 $175,000

Total $1,425,000 $300,000 $1,125,000

Stop Loss Products

Stop Loss Products


Aggregate Stop Loss (ASL) Definition/Concepts

Aggregate Stop Loss limits the ASO customer’s overall claim experience for a policy year.

The customer’s liability is usually expressed in terms of a percentage of total expected claims. Typically this is 125% but can vary based on customer need. All claims up to this threshold are the customer’s liability, all amounts

over are the Stop Loss Carrier’s liability.

In most cases, ISL coverage must also be purchased. In some instances, an “implied” ISL level can be used as an alternative.

Amounts paid by the employer, below the individual stop loss pooling point, accumulate towards the ASL threshold.

Stop Loss Products

Stop Loss Products


Individual Stop Loss & Aggregate Stop Loss Contract Types

New Business: Contracts are labeled according to (1) how claims are incurred and paid and (2) how they accumulate to the pooling point. The first number refers to the incurral period and the second number to the paid period. 12/12 (incurred in 12 / paid in 12) – Standard first year option

Run In Contracts: 15/12, 18/12, 24/12. Only available in first year.

Run Out Contracts: 12/15, 12/18, 12/24. Applies to termination year only.

Renewal: Contracts can renew on a rolling basis or a paid basis. A “paid” contract includes all claims incurred after the policy effective date (while the contract is in effect) toward the pooling point in the year in which they are paid. Rolling Contract: i.e. Rolling 12/15 (incurred in 12 / paid in 15)

Incurred Contract: 12/36 - Accumulates claims toward the pooling point based on the year the claims were incurred, rather than the year they were paid – matching employer liability

Stop Loss Products

Stop Loss Products


Managing General Underwriters

A group of our stop loss competitors who underwrite, act as a gatekeeper for carrier selection and claims administration, select reinsurance brokers to quote the business and eventually assign the business to selected carriers.

MGU’s assess risk, but do not retain it. Direct / 3rd Party Carriers

A group of our stop loss competitors who provide stop loss coverage but do not administer the customer’s medical benefit plan.

Integrated Carriers

A group of stop loss providers that administer both the medical and provide stop loss coverage.

Players in the Market




Strict disclosure on both new business & renewals

Contingent Quote; no firm quotes until 30 days before the effective date

Lasers often required

Gaps in coverage (limitations, exclusions, maximums in Stop Loss policy that are different from the medical plan)

Conservative contract constraints

Strict claim submission requirements

According to the 2007 Towers Perrin Stop Loss Survey close ratios on new business were 3.4% and retention rates were 68%

Common MGU / Direct Carrier Practices:



The practice whereby a carrier requires completion of a disclosureform signing off on all known and emerging claims.

Sources for completing the form include pre-certification information, case management notes, utilization review and claim files. Required information includes:

Diagnosis Current/Planned treatment patterns Prognosis Signature of an officer of the company

Disclosure Reporting

Information disclosed can be used to justify re-rating and failure to provide complete disclosure may result in claim denial.

Disclosure Reporting


Common practice among third party carriers is to issue quotes on an illustrative basis

– Updated claim information is required 15 – 45 days prior to the effective date– Based on updated information TPC may re-rate or laser any emerging

claims. On average, 10% of cases are re-rated based on updated claims experience.

– Customer and Broker are left with unexpected changes on or about the effective date

The smaller employer groups are least likely to afford the risk of a contingent quote due to these risks

The Risk of a Contingent Quote


Firm vs. Contingent Quote

Company XYZ has 200 employees

– Employers expected annual healthcare costs are $600K, ($500K medical, $100K Stop Loss premium)

– Just prior to renewal, an early stage transplant patient develops on the plan with an expected cost of $300K

– If this customer had a firm quote their costs would remain at $600K– With a contingent quote, costs would increase to $900K, ($500K medical,

$400K Stop Loss premium), a 50% increase!

Employees Healthplan CostsContingent

Healthplan Costs Impact200 600,000$ 300,000$ 50%


Comprehensive Coverage & Integration

Consistent with underlying medical plan in terms of limitations, exclusions and maximums.

Consistent standards for medical necessity, claims review and payment

Ease of Administration

Single point of contact Faster reimbursements Additional claim audit Timely notifications and reporting Typically no claim filing requirements

Plus

Sensitive data remains with the medical carrier instead of being distributed to multiple parties

Accountability Risk Retention

The Value of Integration

The Value of Integration


Accumulates claims toward the pooling point based on the year the claims were incurred, rather than the year they were paid – matching employer liability.

Once an individual hits the pooling point in a given year, all other claims incurred by that individual within the year (paid within the 36 month paid period) will be covered.

Eliminates the need for separate Run Out or Run In protection in the future & eliminates the first year maturation adjustment.

Example: ABC Company has elected Incurred Accumulation with a 1/1/08 effective date. All claims incurred in 2008, paid by 12/31/10, will be grouped together for purposes of comparison to the pooling point. At renewal, all claims incurred in 2009, paid by 12/31/11, will be grouped together.

Incurred Accumulation Option (12/36)

Premium Stop Loss Products

IncurredPaid

IncurredPaid

1st Year

2nd Year

Incurred Accumulation

2011Jan-Jun Jul-Dec

2008 2009 2010Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec



Mature Example with Known Claimants at Renewal

Lives: 800 LivesPooling Point: $100,000Contract Basis: 15/12 (mature)Claimants No high dollar claimants at presale; 2 claimants at $250,000 each at renewal

With RP Option Without RP Option Difference Year 1: Pooling at $100,000 Rate $50.00 $50.00 0 High Claimant Adjustment 0 0 0 Renewal Planner Adjustment 5.00 0 (5.00) Total Rate $55.00 $50.00 (5.00) Annual Premium $528,000.00 $480,000.00 ($48,000) Year 2: Pooling at $110,000 Rate $54.00* $54.00* 0 High Claimant Adjustment 0 30.00 30.00 SubTotal $54.00 $84.00 $30.00 Renewal Planner Adjustment 4.50 0 (4.50) Total Rate $58.50 $84.00 $25.50 Annual Premium $561,600.00 $806,400.00** $244,800 * Rate assumes 8% medical increase** If sold as immature, the rate would have been adjusted for maturation. If no PPT increase, addt’l adjustment for leveraged trend.

Impact: By purchasing the RP option in year 1 for $48,000 in premium, in year 2 the client avoids:- Lasering the high dollar claimants & thereby assuming the $280,000 potential claims OR- Premium adjustment of $30/mo to accommodate the high dollar claimants, resulting in a difference of

$244,800.


Guarantee of InsurabilityPremium Stop Loss Products


Impacting the Rate: Contract Nuances

Premium “No Gap” Coverage

“Buy Down” Options

Quote Terms

Firm quoteContingent quote

LaseringNo lasers applied

Lasers applied to known claimants

MaximumsMirror medical plan

Separate maximum applied

Run In CapUnlimited maximum

Maximum applied

Contract Type

Paid Rolling

PharmacyIncluded Excluded

Potential Gaps in Buy Down Coverage

Last minute re-rating

Additional customer liability between case PPT and laser

Additional customer liability over applied maximum

Additional customer liability over applied maximum

Year-to-year protection

May reduce reimbursement amount on high claimants and may reduce the number of claimants eligible for reimbursement


Trend

18


Common drivers for catastrophic claims include:

Neonatal Care

Cancer Treatment and Care

Trauma / Burn Victims

Severe Cardiovascular conditions

Transplants

Hemophilia and Genetic Disorders (Multiple Sclerosis)

Specialty Drugs and Therapies

The frequency of jumbo claims is defined as a member incurring medical claims of $1 million or more in a year, increased ten-fold from the year 2000 to 2005, from less than 1/10th of one member per 100,000 health plan members to 1.1 per 100,000 members in 2005 *

Catastrophic Claim Drivers

* Source: Evergreen Re study published in the 9/16/07 MyHealthGuide Newsletter



Stop Loss Claim Drivers by Pooling Level

As the pooling level increases the drivers of Stop Loss Claims change

– NICU costs drive a much greater percentage of overall stop loss claims as the pooling point increases

0%

5%

10%

15%

20%

25%

30%

35%

40%

NICU Cancer Transplants Cardiovasular Trauma / Burns High CostDrugs

Other

$100,000

$250,000

$500,000



Inpatient expenses drive 60% of all Stop Loss claim costs• With the effect of leveraged trend the increase of inpatient costs for stop loss claims is between 12% and 24% • An example of a catastrophic inpatient claim is premature births • Inpatient costs can drive as much as 70% - 80% of all stop loss claims as the pooling point increases

ServiceFirst Dollar

TrendPercent of First Dollar Claims

Leveraged Trend

Percent of SL Claims

Inpatient 8% 30% 12% - 24% 60%

Outpatient 8% 30% 12% - 24% 20%

Professional 5% 35% 8% - 15% 5%

High Cost Drugs 15% 1% 23% - 45% 10%

Other 10% 4% 15 - 30% 5%

Total Trend 9% 100% 14% - 27% 100%



According to the March of Dimes, most pregnancies last around 40 weeks. Babies born between 37 and 42 completed weeks of pregnancy are called full term. Babies born before 37 completed weeks of pregnancy are called premature.

– About 12.5 percent of babies (more than half a million a year) in the United States are born prematurely

• (1). For reasons that doctors don't fully understand, the rate of premature birth has increased by more than 30 percent since 1981 (1).

• Premature birth is a serious health problem. • Premature babies are at increased risk for newborn health

complications, as well as lasting disabilities, such as mental retardation, cerebral palsy, lung and gastrointestinal problems, vision and hearing loss, and even death.

• Many premature babies require care in a neonatal intensive care unit (NICU), which has specialized medical staff and equipment that can deal with the multiple problems faced by premature infants.

NICU Costs represent 35% of all stop loss claims > $500K

Premature Births


1. Martin, J.A., et al. Births: Final Data for 2004. National Vital Statistics Reports, volume 55, number 1, September 29,

2006.



Facility Differences

Contracting arrangements with local Hospital drives a portion of Stop Loss rates

Hospital average cost per day

– The average cost per day for hospital admissions is between $3,000 and $3,500

– The average non-catastrophic cost per day is about $2,000– Average catastrophic cost per day is about $6,000 and can be as high

as $12,000 - $15,000 per day


Facility Differences

Hospital costs increase each year but the increases vary by facility type

– The average trend at a Community Hospital is about 5%– The average trend at Tertiary and Teaching Hospitals is about 8%

Facility Type First Dollar Stop LossTertiary 30% 45%Teaching 30% 45%Community Hospital 40% 10%Total 100% 100%

% of Claims at Different Types of Facilities


Outpatient services drive 20% of all Stop Loss claim costs• With the effect of leveraged trend the increase of outpatient costs for stop loss claims is between 12% and 24%• An example of a catastrophic outpatient service is a cancer diagnoses receiving chemotherapy. Members in this treatment regiment can range from 50K - 150K in the majority of cases. In cases where cancer has spread to multiple organs it is not unusual to see claims in excess of 250K


ServiceFirst Dollar


Leveraged Trend


Inpatient 8% 30% 12% - 24% 60%

Outpatient 8% 30% 12% - 24% 20%

Professional 5% 35% 8% - 15% 5%

High Cost Drugs 15% 1% 23% - 45% 10%

Other 10% 4% 15 - 30% 5%

Total Trend 9% 100% 14% - 27% 100%



High cost Drugs represent 10% of stop loss claims on average These drugs can run as high as $3 million for individualized cancer therapies. Given the highly individualized nature of certain high cost drugs, these drugs are produced on a as needed basis with minimal manufactures to help control cost

• In 2004, high cost drugs represented only 4% of total stop loss claims vs. 10% today • A hemophilia patient receiving factor replacement can quickly increase significantly if a claimant develops antibodies and requires greater than normal factor 8 replacement doses


ServiceFirst Dollar


Leveraged Trend


Inpatient 8% 30% 12% - 24% 60%

Outpatient 8% 30% 12% - 24% 20%

Professional 5% 35% 8% - 15% 5%

High Cost Drugs 15% 1% 23% - 45% 10%

Other 10% 4% 15 - 30% 5%

Total Trend 9% 100% 14% - 27% 100%



Leveraged Trend

75,000 75,000

75,00090,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1 2

Stop Loss Carrier

Customer

Assume that in your current year, the plan has a $75,000 pooling point and there is one employee with a $150,000 claim. The customer funds the first $75,000 and the stop loss carrier funds the remaining $75,000. If medical trend is 10%, the same $150,000 claim would increase to $165,000 in the following year. The customer would still fund the first $75,000 but the stop loss carrier would pay $90,000 – an increase of 20%

In addition, a $75,000 claim (which does not hit the pooling point in the current year) becomes a $82,500 claim in the following year and the stop loss carrier is liable for claims it didn’t have to cover at all the year before

Leveraged Trend

Stop Loss Carrier Cost

increases 20%

Customer Cost is Flat


Leveraged Trend Effect on Pooled and Unpooled Claims

Total ClaimsUnpooled

Claims Pooled Claims% Pooled to

Total Total Trend Unpooled Trend Pooled Trend

Year 1 1,000,000$ 900,000$ 100,000$ 10%

Year 2 1,100,000$ 980,000$ 120,000$ 11% 10.0% 8.9% 20.0%

Year 3 1,210,000$ 1,066,000$ 144,000$ 12% 10.0% 8.8% 20.0%

Year 4 1,331,000$ 1,158,200$ 172,800$ 13% 10.0% 8.6% 20.0%

The example above looks at a 10% claim trend over a 4 year period

– The overall pool increases 10% each year– The Stop Loss Carrier covers a greater percentage each year while the unpooled

percentage will actually decrease As you can see in the graph below the pooled claim dollars will expand at a higher pace when

compared with the unpooled if no changes are made to the pooling level

Pooled vs. Unpooled Claim Trend

Pooled Claims

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

$150,000

$160,000

$170,000

$180,000

Year 1 Year 2 Year 3 Year 4

Pooled Claims

Unpooled Claims

$800,000

$850,000

$900,000

$950,000

$1,000,000

$1,050,000

$1,100,000

$1,150,000

$1,200,000

Year 1 Year 2 Year 3 Year 4

Unpooled Claims


Leverage Trend is not a number, rather it’s a range of numbers Lower Pooling levels have leveraged trend as low as 12 – 14% Higher Pooling levels have leveraged trend as high as 30 – 40%The reason for this differential is the effect of deductible leveraging

Leveraged Trend

2007 2008 % ChangeClaim $ Amount 300,000 330,000 10%Pooling Level 50,000 50,000 0%SL Claim $ Amount 250,000 280,000 12%

2007 2008 % ChangeClaim $ Amount 300,000 330,000 10%Pooling Level 200,000 200,000 0%SL Claim $ Amount 100,000 130,000 30%

Leveraged Trend


The best way to control leveraged trend is through increasing the pooling level. There is always a concern about the additional risk driven by the increase in pooling level. While it does increase customer liability, it may be more cost effective to do this than to receive an increase in premium to maintain the lower pooling point.

For most health plans, a 10% increase in pooling level doesn't impact the overall risk for the health plan by much. As a result, a strategy of consistent increases in line with medical trend to the pooling level each year is most practical.

Increased Pooling Level Impact

# Large Claims Total Plan Cost Likelihood Total Plan Cost Likelihood0 $4,500,000 20% $4,450,000 23%1 $4,700,000 40% $4,675,000 41%2 $4,900,000 20% $4,900,000 23%

3+ 20% 13%

$200,000 Pooling Level $225,000 Pooling Level

Increased Pooling Level Impact


Exhibit I below looks at the effect of raising the pooling level each year in line with medical trend (estimated at 10% in the example). The premium savings generated in this example is $133,650, the question becomes is it worth the additional risk?

Example - Pooling Level Impact

Years Premium Pooling Level Leveraged Trend1 100,000$ 75,000$ 20%2 120,000$ 75,000$ 20%3 144,000$ 75,000$ 20%4 172,800$ 75,000$ 20%5 207,360$ 75,000$ 20%

744,160$

Years Premium Pooling LevelLeveraged Trend 20%

Reduced to 10%1 100,000$ 75,000$ 10%2 110,000$ 82,500$ 10%3 121,000$ 90,750$ 10%4 133,100$ 99,825$ 10%5 146,410$ 109,808$ 10%

610,510$ Premium Savings 133,650$

Exhibit I

Example – Pooling Level Impact


Exhibit II below shows the effect on claim payments of the annualincrease in pooling level. If we assume 1 claimant each year with a base of $100,000 this customer would end up with over $50,000 of savings during the 5 year period.

Example - Pooling Level Impact

Exhibit II

Years Premium Pooling Level 1 Claimant1 100,000$ 75,000$ 125,000$ 2 120,000$ 75,000$ 137,500$ 3 144,000$ 75,000$ 151,250$ 4 172,800$ 75,000$ 166,375$ 5 207,360$ 75,000$ 183,013$

744,160$

Years Premium Pooling Level 1 ClaimantAdded Employer

LiabilityPremium Savings

1 100,000$ 75,000$ 125,000$ 2 110,000$ 82,500$ 137,500$ 7,500$ 3 121,000$ 90,750$ 151,250$ 15,750$ 4 133,100$ 99,825$ 166,375$ 24,825$ 5 146,410$ 109,808$ 183,013$ 34,808$

610,510$ 82,883$ 133,650$

Net Savings 50,767$

Example – Pooling Level Impact


Sample Renewal Rate Reductions

Changes in the pooling point will reduce fixed premium costs

– As shown in the chart above for customers with mature claim experience and a pooling level of $75,000 a $10,000 increase in pooling level will reduce their stop loss premium by 11 – 19%

– For customers with a pooling point over $200,000 a $25,000 increase in pooling level will lower rates by up to 25%

By increasing the pooling point customers will reduce stop loss premiums and also save on premium tax

Original Pooling Point Range Polling Point Change Mature Rate Reduction

$40,000 - 100,000 2,500$ -2% to -5%5,000$ -6% to -10%

10,000$ -11% to -19%15,000$ -15% to -28%

$100,000 - 250,000 5,000$ -2% to -6%10,000$ -6% to -11%15,000$ -8% to -15%25,000$ -13% to -25%


Recommended Pooling Levels Although each employer will have their own risk threshold we do have recommend pooling levels by

employer size– Key is to balance stop loss ISL costs with the customers risk– Keep risk threshold consistent each year by increasing the pooling point in line with medical

trend The chart below represents recommended pooling levels for a variety of employer sizes

– Assumption is $6K PEPY in annual claim costs – The target pooling point and ranges should increase about 10% per year

Number of MatureEmployees Claim Pick

250 $1,500,000 $45,000 To $90,000500 $3,000,000 $90,000 To $180,000750 $4,500,000 $135,000 To $270,000

1,000 $6,000,000 $175,000 To $360,0002,000 $12,000,000 $360,000 To $720,0002,500 $15,000,000 $450,000 To $900,000

Acceptable Pooling Range

Stop Loss Pooling Point Guidance


3 Actions to Mitigate the Renewal Rate Increase

Eliminate the Maturation Adjustment on First Year Business

Purchasing a Run In or Run Out contract in the first year eliminates the second year maturity adjustment. Another option is to sell on a mature contract basis.

Mitigate the Effect of Leveraged Trend

Pooling points should increase annually to mitigate the effects of leveraged trend

Eliminate Adjustments for Ongoing Claims

Adjustments for ongoing claims can be eliminated with products designed to guarantee a level of predictability for renewal rates

Summary Pooling Point Guidance


Volatility

36


Capital Requirements / Government Regulation

Capital requirements and government regulations drive much of the cost in the stop loss marketplace

– Based on the rating of the Stop Loss Carrier and state insurance department regulations 40% - 55% of every dollar of revenue is required to be allocated to reserves.

– Each state has specific filing requirements which drives higher administrative fees

– Premium Tax– Some states levy special assessments for uninsured residents

Consequently the industry prices to a 68% loss ratio


Loss Ratio Percent of Cases

0% 25%

0-40% 25%

40-100% 25%

100% or more 25%

Past loss ratio experience is not credible; ongoing claims have higher credibility and present selection risk

Typical Loss Ratio experience shows that a case has a 1 and 4 chance of falling into each of the following loss ratio buckets

Predicted Loss Ratio


Average Number of Years Between the Big Claim

The overall stop loss pool increases by leveraged trend annually

– Some clients will look at their three or four years of experience, and expect a rate pass for “good experience”

– How good would their experience be if they were the one with the really big claim?

The chart shows how often, on average, a client should expect to be the one with the really big claim

Group Size (Members) Claim of $250K Claim of $500K Claim of $1M

250 14 21 29

500 8 12 16

1000 3 - 4 4 - 6 7 - 8

2000 0 - 2 2 - 3 3 - 4

Years Between a Large Claim


Expected # of High Claimants

Based on a 2,500 life group the above example shows the expected number of claimants that would exceed a pooling level of $100,000

– The expectation is this customer would have 2 members above the pooling level in 2001

– If the same pooling level is retained, the number of members exceeding the pooling level would grow exponentially over the years

Expected # of High Claimants

2

6

15

0

2

4

6

8

10

12

14

16

Year

Cla

iman

ts

2001 2008 2015


Expected Claims by Pooling Level

Based on prior claim experience we can predict the number of claimants a group will have by pooling level

As a customer increases their pooling point the risk of members reaching the pooling level decreases which will translate to lower stop loss premiums

Pooling Level

Network OAP

50K 5.8 7.0

100K 2.0 2.8

150K 1.0 1.3

200K 0.8 0.8

250K 0.4 0.5

500K 0.1 0.2

Number of Expected Claims per 1,000 lives

Expected Claimants


Overall, stop loss experience is pooled to obtain a manual rate

– An individual employer group’s demographics and geographic location will drive an adjustment to the manual rate

– Known claimants would be factored into the premium through either a claim load or laser– If there are no known risks in the population the employer group may receive a reduction

in their rates When obtaining a contingent stop loss rate an employer is taking a risk on potential high dollar

claimants developing after their initial rate quote

– An example of this is a customer that has favorable demographics and geography and receives a favorable reduction in their manual rate

– However, If the employer does not get a firm quote they will be subject to being underwritten again within 30 days of the policies inception

• Should a potential claimant over the pooling level develop, it would result in a increase in the rate or a Laser on that member

The frequency of known claimants developing later in the year is about 20%

Pooled Risk vs. “Known Risk”


Lifetime Max and HRA / HSA Plans

Policy and lifetime maximums

– With no separate maximum there is full coverage of eligible claims paid under the benefit plan

– Many specialty carriers standardly quote a maximum on ISL and ASL– Unexpected risk can be catastrophic eliminating the protection the employer

was expecting Effect on rates with a H R A / H S A

– Effect on stop loss rates is minimal– Claim pick will change slightly– Largest impact is an increase to out of pocket maximums– Minimal effect in the short term but may reduce future claim risk


Value of Provider Network and Transplant Contracts

According to a 2006 study by Milliman, the average organ transplant costs $328,000 and can rise dramatically with complications

– Transplant coverage is included in the underlying plan with most Integrated carriers

• Case management is consistent throughout member treatment• Negotiating power of integrated carriers can lead to lower

overall costs for employers– Some employer’s purchase carve out transplant services which

require members to use a different network• Contract language can restrict members to only one transplant

which could shift liability back to the employer• Restrictive language can eliminate payment and leave the

employer at risk


Case Management Notes

Release of Case Management Notes

Carriers will provide the succeeding carrier information, at the customer’s request, once

signed agreements are in place to ensure that personal health information (PHI) is disclosed

appropriately.

The following information is normally released, at the customer’s request– Member name, address, social security number, and relationship to the account subscriber – Diagnosis (for ASO accounts only) – Hospital name (if patient is currently in hospital, for ASO accounts only) – Servicing provider information (name, specialty, address, for ASO accounts only)

Prognosis information is not provided. – This information is subjective in nature and does not take into consideration how individuals respond

to care plans – Most carriers will not project which members may incur claims who will exceed the pooling point,

including projected members on transplant lists, in case management or diagnosed with specific illnesses that may exceed the pooling point

– These projections are subjective and may be inaccurate due to the unpredictability of how individuals may respond to specific illness or conditions


Case Study - Handout

Let’s put it all together Sample Case

– Large Retailer– 1,000 Employee’s / 2,000 Members– Demographic Factor of .90

• 53% Female• 47% Single• 21% Married• 32% Family

– Main Locations in Texas– Current Pooling Point = $150K– Paid Contract 48 / 12– Medical Trend = 8%


Case Study

A. $150K

B. $165K

C. $175K

D. $200K

1. The employer is interested in helping to control fixed costs, and would like a recommendation on what pooling level makes the most sense for their health plan. The current individual stop loss pooling level is $150K. Which of the following would you recommend, and why?

You are the current benefits consultant for an employer who has 1,000 employees.

They are in the process of renewing their individual stop loss policy for the upcoming

policy year. The employer has asked for your expertise in understanding what to

expect for their upcoming stop loss renewal.


Case Study

A. -18%

B. -10%

C. +2%

D. +15%

2. Assuming the employer implements your recommendation in the previous question regarding pooling level, what level of increase in their stop loss rates should this employer expect in their renewal?


Case Study

A. Stop loss is a pooled product

B. Catastrophic claims aren’t credible enough to experience rate a group of this size

C. Considering that a group of 1000 employees is likely to have a claim greater than $500K once every 6 years, this group’s experience is actually fairly normal when compared with the actuarial expected value of large claims

D. All of the above

3. When looking at their stop loss renewal, the employer has noticed the fact that they’ve had individual stop loss coverage for 5 years, and haven’t had a claim greater than $500K. As a result, the employer would like to know why their stop loss premium continues to be high given that they haven’t had any significant large claims. As the consultant for this employer, what’s the most likely explanation for why this may be occurring?


Case Study

A. It’s in the employer’s best interest to move the stop loss business to company XYZ, as 10% savings is a lot of money and likely to be a better deal for the employer.

B. It’s something the employer can consider as an alternative, though there’s a reason why the stop loss rates for XYZ Stop Loss Insurer are 10% lower, and it’s driven by disclosure and the option to laser or deny claims, which would otherwise be covered under a firm renewal.

C. From prior experience, company XYZ has never re-rated an account based on disclosure, so it’s not something the employer should be concerned about.

4. The benefit manager has been networking with peers from other companies and has been informed that if they go with XYZ Stop Loss Insurer, they could save 10% in fixed costs versus their current stop loss contract. They are also aware that XYZ Stop Loss Insurer requires disclosure, while their current stop loss carrier has offered a firm renewal 4 months in advance of their policy effective date. The employer has come to you for advice. Which of the following recommendations best describes the current situation?


Questions

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Next Steps

Before you leave, please make sure you’ve completely filled out and signed the roster- include all information

Print legibly and include your full name, work address, work telephone number, name of company

Complete the evaluation form

You should receive your certificate within three weeks

Thank you!

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