Our economy has faced significant challenges in the past like the one we are in now. This challenging time is a perfect opportunity for employers to adopt alternative funding for health insurance and receive positive cash flow benefits.
These economic headwinds encourage employers to focus on cash flow and managing controllable expenses. Fully insured health insurance is a 100% fixed cost. Partial self-funding is a “pay as you go” approach. Backstops are provided to eliminate volatility through a risk sharing vehicle. Employers can focus on managing their business while enjoying lower fixed monthly payments for health insurance.
This COVID-19 pandemic is causing the Medical Captive Underwriters’ team, our clients and partners to practice CDC-directed steps to control its spread. The goal is controlling and eradicating it. Let’s keep COVID-19 from spreading further.
We continually focus on keeping our team healthy and we recognize the significant negative financial impact on all businesses that this pandemic is having. The economic headwinds will impact businesses for years to come. Encourage employers to explore the self-funding of their health insurance.
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com). Focus is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with at least 50 employees enrolled
Employee paychecks are diluted by catastrophic medical and RX claims
Approximately 20% of the Gross Domestic Product (GDP) spending in the United States is devoted to healthcare; and increasing catastrophic claims costs, specifically over $1 million are a prime reason. Instances of multi-million dollar individual claims have grown at a 30% annual rate since the passage of the Affordable Care Act (ACA) and its mandate for unlimited lifetime benefit limits in health plans. Hospitals and pharmaceutical companies are reaping generous rewards that result from this “unlimited mandate”. The pricing authority now vested in hospitals and pharmaceutical companies is untenable and made worse by their unwillingness to provide any cost transparency to plan sponsors before or after medical events. Prior to the ACA, plan sponsors would cap their annual or lifetime limit; a $1 million per member limit was considered the industry standard.
Industry data reveals that claims over $1 million are primarily comprised of three conditions: Perinatal/Neonatal claims represent 20.7% of all claims and 22.2% of claims spend; Malignant Neoplasms/Cancers represent 20.7% of claims and 20.1% of the claims spend, and; Injury/Poisoning/External Causes, including Burns and Trauma, represent 12.6% of the number of claims and 11.0% of the claim spend.
Opaque provider network contracts impede plan sponsors from their objective of implementing risk reduction initiatives targeted at containing medical claims costs. Networks consider their provider contracts to be “proprietary” despite Employee Retirement Income Security Act (ERISA) provisions deeming claims data ownership to the plan sponsor. Claims detail is restricted by the networks hiding behind unreasoned arguments that make the plan sponsor’s ability to negotiate the cost of care before or after treatment highly difficult and unlikely.
Plan sponsors purchasing stop loss coverage to secure their plan expect claims to be paid. Unbundled stop-loss carriers, those owned independently from the provider networks, have difficulty accurately predicting current or future claims costs without access to appropriate and transparent claims data.
The leveraging impact of medical inflationary trend, which typically outpaces actual Consumer Price Index (CPI) inflation in the United States, is borne by the stop-loss carriers or passed on to plan sponsors. Plan sponsors are left with few choices to absorb increased retention of unpredictable medical costs or pass a portion of the increase to their employees in the form of higher deductibles, coinsurance or increased premium contributions. The impact of medical cost-shifting means employee net (take-home) pay is diluted.
Self-insured plan sponsors know that retaining the predictable (and budgetable) levels of medical claim risk and buying medical stop-loss insurance to transfer unpredictable, and potentially catastrophic, claim risk is the most efficient method for controlling costs. Self-insured employers are uniquely empowered with the ability to design plans that deliver greater transparency and increased control over medical costs. Participation in a group stop loss captive further enhances a self-insured employer’s ability by leveraging the strength of collective membership to capitalize on increased control.
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com). Focus today is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50 state open access medical stop-loss group captive solution for middle market employers with at least 50 employees enrolled.
A Terminal Liability Option (TLO) should be considered by fully funded employers enrolling in medical group captive programs. Quite often, an employer transitioning to a self-funded contract buys a 12/12 with TLO. They renew into a “paid” contract. Paid implies the entire contract period claims may be eligible for reimbursement. A 12/12 TLO transitioning to 24/12 or “paid” contract leaves no claims coverage gap for an employer. TLO run out periods are typically 3 months. Carriers file their policies by state including TLO terms and conditions.
Specific TLO is the liability coverage allowing reimbursement for specific claims. Eligibility requires an in force stop-loss contract and the claims check is cut AND transmitted before contract expiration. Aggregate TLO provides coverage for smaller, more frequent claims not presented but incurred during the stop-loss contract. The reimbursement for Aggregate is filed after policy expiration, specific reimbursement requests must be “funded” by or on behalf of an employer prior to expiry for a reimbursement to occur.
Specific TLO attracts more attention. Employer cost ranges from a 1) fixed monthly PEPM, 2) lump sum fixed dollar amount or 3) a function of adjusted specific rates times enrolled population.
Aggregate Factors accumulate monthly based on enrollment. The Factor is a dollar figure for each tier of enrolled population. Expected is the underwriter’s loss pick for an employer. Maximum is the attachment point (loss pick) plus 20-25%. The attachment point can be pierced during the TLO run out period or during the contract year. Either way reimbursement is requested after the contract expires.
TLO methodology with fewer variables is easier for an agent, administrator or employer to understand. If the stop-loss carrier sets the TLO rates/factors after TLO is invoked by the employer; this requires a more complicated conversation. Employers must understand the methodology for an informed decision.
Aggregate TLO involves three scenarios in this discussion. Each is described below in the form of a question.
A) Do the TLO Factors remain in place for the run-out period, effectively mirroring the Contract Factors? Yes. Simple, easy to explain.
B) Do the TLO Factors increase by a fixed percentage? Yes. Contract Factors times the percentage increase for invoking TLO. Simple, easy to explain.
C) If the Contract Factors are adjusted after TLO is invoked, how is this calculated? Methodology that expands to the claims experience is complicated. Three months or more of aggregate claims experience could be averaged for calculating adjusted Factors. This tilts in favor of the stop-loss carrier. An employer new to self-funding arrives with little to no detailed claims for an underwriter to review. Meaning the loss pick may not be based on actual experience. The increase in TLO is based on a claims scenario that is causing the employer to rethink their decision to self-fund. Factors may increase disqualifying the employer for reimbursement, and possibly require the plan to return monies already received.
Less variables allow for easier conversations.
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com). Focused on lowering medical trend and spend for enrolled employers. ClearCaptive is a 50 state open access, medical stop-loss group captive solution for middle market employers with at least 50 employees enrolled.