Employee paychecks further diluted by catastrophic medical and pharmacy (RX) claims over $1 million.
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.
Donald McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com). A program management company focused on alternative risk transfer solutions to lower employer’s costs in both accident and health & property and casualty insurance. Primary focus today is employee benefit advisors assisting them to lower medical spend and medical trend for employers enrolled in ClearCaptive. ClearCaptive is a 50 state open, stop-loss captive solution for middle market employers above 50 employees enrolled on the Plan
Plumbers stop water leaks, but how do you stop profit leaks due to healthcare inflation?
When evidence of water infiltration arrives in your house, the solution resides with a plumber. Prior to service the plumber will identify the items you will pay for and the cost for each, such as: travel time and labor and materials. A Contract will be signed upon the plumber’s arrival and the agreement is clearly understood by both parties.
Continuously increasing healthcare costs drain an employer’s hard-earned profits. Traditional fully-funded or level-funded insurance programs provide no real transparency on healthcare cost drivers. Increased cost-shifting in the form of higher deductibles and coinsurance reduces employee total compensation. This adversely impacts employee morale along with the employer’s ability to recruit and retain quality employees and impedes the employer’s business objectives.
Self-funding is the solution to stop profit leakage for middle-market employers.
More than 70% of all employer sponsored healthcare in the US is self-funded. Self-funding increases an employer’s control over plan design and allows an employer to deliver healthcare benefits that more closely coincide with the firm’s financial, risk, and employee benefit objectives. Self-funding also improves transparency in terms of identifying specific cost drivers and claim trends within the plan and allows the employer to implement targeted risk mitigation initiatives. Self-funded employers also experience impactful cost reductions in insurance carrier overhead, reduced state premium taxes and avoidance of some ACA-mandated assessments. Employer plan sponsors contract with a Third-Party Administrator to provide medical and pharmacy benefit administration, under the employer’s direction, for covered members. Medical stop loss coverage is purchased by the employer to stabilize the plan against large individual claims or an unusual accumulation of claims attributable to the entire population of enrolled plan members. Human resource can focus on attracting the talent pool your company seeks and engaging employees based on your core operational values.
Capitalizing on control: Group Stop Loss Captives
Middle-market employers, those with 50-500 employees, can also take advantage of pooling principles and the law of large numbers by participating in a medical stop-loss group captive. By collectively replicating the risk profile of a much larger entity, medical stop-loss group captives are able to reduce the effects of medical inflationary trend and promote overall cost stability by spreading risk across a larger grouping of participants.
Considerations for selecting a captive program
Well run captive programs will provide complete transparency as to administrative and operational fixed costs that are part of the employer’s indirect participation expenses in the captive. Any participation bylaws that the captive requires or the employer to remain in the program, either time or cost impact, should also be clearly outlined up front. The impact of fixed versus variable cost increases and the ability to lower medical spend should be reflected in the program’s published financial results.
Supply and demand principles do not impact medical inflation due to hospitals lack of transparency. The solution for combating the negative impact of healthcare cost leaks on employer profits resides in self-funding. The middle market employer’s best and most efficient method is the stop-loss group captive.
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com). A program management company focused on alternative risk transfer solutions to lower employer’s costs in both accident and health & property and casualty insurance. Primary focus today is employee benefit advisors assisting them to lower medical spend and medical trend for employers enrolled in ClearCaptive. ClearCaptive is a 50 state open, stop-loss captive solution for middle market employers above 50 employees enrolled on the Plan.