Lasering and other drawbacks you need to know about
What is stop loss reinsurance? While stop loss coverage protects employers from paying excessive claims in any given year, the cost of that coverage will likely increase if you have excessive claims, and following years they might reject certain employees, and it may be more difficult to get rates from other stop loss providers.
What is stop loss? Stop loss (also called reinsurance or excess insurance) protects against catastrophic losses or large shock claims by protecting reserves after a certain threshold is reached, as well as protecting the integrity of the organization, and its cash flow.
Certain stop loss reinsurance carriers are now creating products to address the market size they underwrite, though there are still only a few who will do less than 50 units. Most have a minimum limit of 100 lives.
The existence of stop loss insurance does not make a health plan “insured,” since the stop loss protects the organization, not the employee.
Cost:
Stop loss costs are determined by demographics, prior claims history, possibly health questionnaires, location, ppo network discounts, and by critical plan design. Remember that stop loss insurance is designed as an emergency back-up for unexpected costs, so if your reinsurance is not asked to pay anything any given year, that is good news. On the other hand, if any number of “million dollar claims” come in, then your stop loss will pay, instead of your organization. You will, however, see a spike in your reinsurance premium in coming years, and may be subject to lasering.
What is “Lasering”:
Stop loss protects an employer form being hit with a single medical bill that could wreak havoc on its health plan, reserves or even it’s ability to operate. But as employers seek to renew their stop loss coverage, reinsurance companies are lasering, or carving out, severely ill employees from coverage. [That cost being “pushed back” or made the responsibility of the employer, not the employee.]
For instance: Let’s say a non-profit is paying its overseas staff’s claims, then gets hit by a serious case of stage 3 cancer. Reimbursed by their stop loss policy since the workers medical bills exceed $50,000, the next year the reinsurer demands the non-profit agree that this particular worker now having a specific stop loss of $300,000 instead of $50,000 for the next policy period, or be excluded from the policy altogether. The worker may not even know this has happened, but two such cases can quickly eat up any reserves an organization has saved through self-funding.
With new ACA laws in America, and unlimited lifetime maximums, we can expect to see more and more of this as reinsurers try to push risk back onto groups via things like “lasering.” Due to neonatal, congenital and genetic conditions, along with specialty drugs, these types of practices are occurring more frequently and forcing more groups to exceed their stop loss attachment points. Attachment points being the annual dollar figure for which the employer is totally responsible for paying claims before reinsurance kicks in.)
The Wall Street Journal has written about the topic of lasering at http://online.wsj.com/news/articles/SB106486463561894000
Different policies, different benefits or what?
Specific stop loss – Pays when an individual claim exceeds a certain limit (the lower the amount before the specific reinsurance policy pays, the higher the premium), either for medical only or including prescription medication.
Aggregate stop loss – Covers the entire organization over the course of a year/policy period over a certain percent of projected medical claims/expenses. Usually 125%.
Both are equally common among groups
Smaller organizations with smaller revenues should always add Aggregate Cap Protection.
(Which will help pay for medical costs if claims are particularly heavy to start the year, resulting in cash-flow issues.)
Larger organizations might have a specific stop-loss of $75,000 per incident, where a smaller group might consider $50,000. or even $20,000. per incident. The most common maximum amount most stop loss will insure is $1,000,000.
Aggregate stop loss can either be added to a Specific Plan or purchased by itself. It is calculated based on a certain percentage over projected costs (called attachment points). Usually it’s set at 125% (of anticipated claims for the year). You determine the benefits you wish to have covered under an Aggregate contract, usually medical, but prescription drugs, disability, and even vision and dental can be included.
To calculate your annual attachment point, multiply your monthly enrollment by the aggregate “retention factor” and aggregated for each month in the policy year. (Policy retention factors are influenced by the claim and/or premium experience of the group, expected medical costs in the geographic area, the contract terms, and whatever your medical trend increase is.
Stop loss excess insurance is written and paid for on an annual basis such as:
12/12 – Incurred in last 12 months/Paid claim in that 12 month period
12/15 – Incurred in last 12 months/Claims billed and paid over 15 months (also called a “run-out” policy)
15/12 – Incurred in last 15 months/Claims billed and paid over 12 months (also called a “run-in” policy)
There are other agreements that can be made regarding stop loss (such as a 24/12, or 12/36, but these are most common.
Why a 15/12 or a 12/15?
Maybe due to medical billing/accounting lag time, you know that older bills will be coming in and you want them covered under the new contracted year. Thus a 15/12 allows you to backdate the contract per se, allowing coverage for claims up to three months prior to it going into effect. (Although some have limits that set a maximum that will be paid in such scenarios.)
A run-out contract (or 12/15) allows for medical expenses to be covered if they happened in the year (say in October), even if the claim isn’t billed until February of the following year (if the contract was for January to January).
Especially when dealing with international claims and hospital/doctor billing, you may not even know of treatments till long after the fact. Thus the importance of a run-out period. Depending on the year of your contract, a 15/15 might be the best option.
Incurred stop loss comes into effect when you have high claims (due to hospital, transplants, etc.) that you might want to spread between years ($1,oo,ooo.+ claims) These would be paid out partially in one year and partially in the next so tat the cost doesn’t come back to the organization after the max cap is reached.
Should we expect to hit our stop-loss limits?
Currently, according to Blue Cross/Blue Shield approximately 12-15 percent of claims reach the stop loss coverage limit. And in America, current cancer treatments can easily equal $100,000 a year, not counting specialty drugs which can triple costs.
See more at:
http://costprojections.cancer.gov/annual.costs.html
To see which other healthcare costs are driving up costs, see https://www.selffundedhealthinsurance.com/news-and-helpful-links/self-insurance-common-expensive-medical-claims/
Other important sources:
Link to other good questions you should be asking regarding your stop loss policy:
http://www.nysmbc.com/ResearchLibrary/Industry_Topics/SelfFunding_Questions-Employers-Should-Ask.cfm
A good forum discussion on Stop Loss: http://www.youtube.com/watch?v=NrZkflvAqH0
CIGNA also has a good explanation of stop loss and various options and examples here: http://newsroom.cigna.com/images/56/stoploss_whitepaper_final.pdf
In Conclusion:
Stop loss reinsurance is critical when self-funding. It usually covers up to $1,000,000. per incident (Specific) and you can choose to have stop-loss written so that it protects you for bills you know haven’t hit yet (run-in), or that might not get billed in the current year (run-out). Knowing whether you are being charged too much for reinsurance, esp. at renewal, knowing who the worst offenders are in regards to lasering, and knowing how to best protect your organization against being held ‘hostage’ once you’ve got large claims (making it substantially more difficult to move), is the work of an expert consultant. Aren’t you glad that GNI has those types of expert international consultants ready to answer your questions?