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.