Our economy has faced significant challenges in the past and this economic environment, like others, shall pass. This challenging time is a perfect opportunity for employers to review and adopt self-funding for health insurance. Employers are reviewing their sales pipeline and supply chain.
 
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 and lower fixed 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 focus on keeping our team healthy.  We recognize the significant negative financial impact on all businesses this pandemic is having.  The economic headwinds will impact businesses for years to come. Encourage employers to explore self-funding their health insurance.  Transparent medical group captive program smooth renewals and lower medical spend.
 
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
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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
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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.
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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.

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​Middle market employers gain control and transparency by transitioning to self-funding (SF) utilizing a group captive program.  Control over the Plans offered; Transparency over all aspects of the what drives the renewal cost.  Said another way, do away with arbitrary overhead charges, undisclosed costs and RX revenue to the fully insured (FI) carrier. The FI carrier unilaterally changes the Plan (not offered this year?) misstating the actual impact of the FI renewal.  SF renewals are easier at open enrollment, employers can choose to leave the Plans in place.  The conversation is the change in employee and member contribution.  FI overhead is subject to Medical Loss Ratio (MLR).  The 15-20% MLR ignores fees and rebates FI carriers add or receive that do not require disclosure.  Increasing FI profitability year over year.  Prior to passage of the Affordable Care Act (ACA), the SF transition conversation centered on removal of state mandated coverage and premium taxes.  The conversation today expands to include ACA Health Insurance Taxes (HIT) and the gerrymandered MLR.  

The ACA imposes an annual, non-deductible cost on insurance companies that offer FI plans and other providers of health coverage – the “HIT”. This ACA fee was intended to fund the state and federal ACA marketplace. The fee is based on an insurer’s share of the market, which is calculated based on each insurer’s net premiums for the year. The estimated applicable amount to be allocated between the FI market in 2020 exceeds $15,500,000,000. ACA requires the fee be paid in each calendar year after 2013. Legislation enacted in December 2015 suspended HIT collection for 2017.  January 2018 legislation suspended the HIT collection for 2019. Unless Congress acts, the fee will go into effect for 2020. Even if congress acts shortly, can you expect your locked rates to be reduced by the FI market to offset removal of the HIT mandate?
 
The annual HIT fee is assessed and paid on a calendar-year basis, based on data from the prior year. Next year the HIT fee is due September 30, 2020, based on 2019 data. Only FI carriers and providers of similar coverage pay the HIT fee. FI carriers pass the HIT tax to employer group clients in the form of higher market premiums. The increased HIT amount will likely result in plan premium increases for 2020, adding roughly 3% to the overall premium costs. Plan sponsors should be aware this fee may be reflected in their 2020 FI premiums. 

Middle market employers self-funding utilizing a group captive gain transparency and control while avoiding HIT, certain state premium taxes, some state coverage mandates, undisclosed RX rebates and the overall lack of transparency in the FI market.
Don McCully runs Medical Captive Underwriters LLC, www.medicalcaptive.com - Program management company using alternative risk transfer solutions lowering employer’s costs in both A&H and P&C insurance. Primary focus today is employee benefit advisors to lower medical spend and medical trend for employers enrolled in ClearCaptive. ClearCaptive is a 50 state open access, stop-loss captive solution for middle market employers with at least 50 enrolled employees.

Plan Sponsors considering or reviewing your Group Stop-loss Captive program: Does cash matter?
Middle-market employer plan sponsors choose a group stop-loss captive over fully funded options for a variety of reasons. Increased data transparency derived from self-funding delivers more accurate measurements of medical spend reporting to apprise management of this unremittingly increasing expense item. Increased medical expense reduces cash liquidity on a self-funded plan sponsor’s balance sheet, especially when revenue does not grow enough to offset the rate (5.8%) of annual medical inflation over the past decade.
Medical inflation grew at twice the yearly US inflation rate during this time period and is driven largely by the costs of specialty pharmaceuticals which are growing at an unprecedented rate.  Also contributing are increased instances of catastrophic claims over $1 million, which have grown more than 30% annually in each of the last eight years. The growth rates in these two categories are exacerbated by the addition of fully insured carriers adding overhead and other ambiguous expense fees to their premiums. Fully insured carriers make nearly ten times the profit compared to independent, unbundled stop-loss carriers.
Self-funding through a group stop-loss captive effectively lowers an employer’s costs as insurance carrier overhead, administrative fees, state premium taxes and ACA assessments are not a component of the plan sponsors directly paid RX and medical spend. Self-funding delivers a lower overall cost structure which contributes to increased asset liquidity on the employer’s balance sheet. Employer control over the plan agility is also accentuated as most plan assets are controlled by the self-insured employer plan sponsor.
Greater control to increase transparency and reduce costs are primary reasons that self-funding through a group stop loss captive is a preferred option for middle-market employers to more effectively manage this important income statement expense. A tradeoff however, for enrolling in a group captive program is the requirement to post collateral, typically in the form of cash or a letter of credit, to secure their portion of “insurance company” obligations assumed by the captive. In return, employers can expect reduced benefit costs and the opportunity receive dividend distributions from their participation in the shared profitability of the captive.
Profitability dividends delivered by the captive serve to effectively lower overall medical benefit spend. An example of a successful underwriting year is an employer receiving a 5% of premium return in the form of a dividend distribution from the captive. In this example, the employer posts 10% of premium in the form of collateral. The employer received a one year, 50% return on capital (collateral). It is important to note that receiving profitability distributions from the captive/shared risk layer are not guaranteed and posted collateral is also at risk of a partial or even full loss.
Cash does matter! The amount of collateral required, the number of underwriting years that collateral funds will be held, along with the percentage and frequency of dividends returned by the captive all need to be appropriately understood by the employer. Does the group stop-loss captive have a consistent history of returning profitability distributions? What is the captive program’s frequency of providing dividend distributions? Every three years, every other year or four out of five years? The experience of the underwriter combined with employer participation in initiatives that influence reductions to medical and pharmacy costs will contribute to the increased potential for delivering underwriting profit.
No two programs are the same. Each employer is unique, just like each group stop-loss captive program is unique. Lowering the ultimate cost of delivering healthcare benefits to employees is a primary objective for participating in a group stop loss captive. The program should empower an employer with increased ability to control this expense line item on their income statement and improve balance sheet liquidity. Success can be measured by reducing insurance expenses, retaining more cash and receiving profitability distributions associated with an appropriate sharing and spreading of risk.
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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.

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The devil is in the details – stop-loss contracts!
TRUE STORIES – Claims over Individual Specific Limit presented more than 6 months after treatment ended:   A) Sepsis treated in hospital environment > $1mm.  B) Injury to chest at home >$250k.
Scenario 1 – Employer renewal utilized a 12/15 or 12/18.  Claim presented outside contract terms, no reimbursement to employer for claim. 12/15 and 12/18 contracts annually both over and under insure an employer.  
 Scenario 2 – Employer renews utilizing a 12/24.   Claim is not paid in the current term, paid if the previous contract is also a 12/24.  Better coverage with less gaps than a 12/15 or 12/18.  Delays premium return if employer is part of a medical stop-loss group captive.
The truth – Claims are both paid under the 24/12 contract purchased from their carrier.   At Renewal employers move to a 36/12, extending the reporting period to present claims for reimbursement.  In both example A and B above, the employer received a distribution of premium from 2018 underwriting year in August, 2019.  Terminal Liability remains available in renewal contracts.
Employers enrolling in medical group stop-loss captive programs understand the program goals and outcomes as reflected in the materials explaining the value proposition from the captive program sponsor.  The programs are all based on the law of large numbers.  The program intentions may include some or all the following:
-smoothing renewals                     
 lowering medical spend             
-lowering medical trend               
​-preserving employer’s investment or collateral (program sponsor’s choice of words)    
The stop-loss contract is the first document that determines how and when claims are reimbursed, based on the employer’s Signed Plan Document.  Direct write carriers reimburse claims quickly, once the claim is accepted.  Usually less than 7-12 business days.  This is true whether the carrier purchases reinsurance or not (carriers typically buy reinsurance at $2,000,000 over the employer’s Individual Specific Limit).    
Managing General Underwriters (MGU) claims authority is tied to the MGU’s excess of loss reinsurer. This extends the claims reimbursement timing to the employer. A second set of eyes reviews every claim reimbursed above employer’s individual specific limit. 
Until the passage of the Affordable Care Act (ACA), which coincided with the market expansion of group captives utilizing stop-loss, specific claims largely fell below $1,000,000.  The ACA increased claims limits, empowering specialty pharmacy and hospital to increase their charges due to the removal of annual caps.
Does your stop-loss contract meet the needs of today’s ever evolving claims environment?  An employer purchasing stop-loss expects reimbursement of claims based on the Signed Plan Document.

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. ClearCaptive is a 50 state open access, group stop-loss captive solution for middle market employers above 50 employees