A growing number of U.S. employers are making the switch to self-insured employer-sponsored health plans. Reduced costs, increased cash flow, decreased taxes, access to data and improved service are just some of the potential benefits.
Most self-insured employers also purchase stop-loss insurance (i.e., reinsurance). In this scenario, the employer pays medical claims up to the stop-loss coverage level. Eligible claims beyond that are reimbursed by the stop-loss carrier, making the value of reinsurance immeasurable when a large claim occurs or when higher-than-expected aggregate claims occur during the plan year.
However, stop-loss insurance coverage is nuanced. Significant variations between contracts and the way in which contract administration is managed can have dramatic effects on how, when or even whether a claim is covered.
Price Is Only One Factor
For a number of years now, the competitive landscape has fostered many more circumstances where the stop-loss policy has been awarded to a carrier other than the claims administrator, commonly referred to as a carve-out. Often the small front-end premium savings creates enormous gaps in coverage, putting the company at risk for financing claims that it thought were insured through the stop-loss policy.
Employers should work with insurance professionals to thoroughly understand contract terms and total expected and maximum liability before finalizing decisions about stop-loss coverage. A few contractual items to watch for include the following:
- Unique lifetime, annual or specific condition maximums or exclusions
- Coverage inconsistencies with underlying medical plan benefits
- Disclosure requirements and contingent quotes
- Reimbursement timing issues that can cause cash flow stress
- Run-in and run-out provisions (true total liability for claims incurred and received before and after the policy effective date)
- Lasers (special risks excluded from the policy)
- Guaranteed renewability
- Pooled versus experience-rated (how renewal rates are determined)
Let Us Help
If your company is considering self-insurance or is currently self-insured, Hylant’s employee benefits specialists can walk you through the details and policy fine print. Contact an expert if you would like assistance.
By Andria Herr, Senior Vice President, Hylant Corporate Employee Benefits