Transcript CIGNA’s Healthcare Leadership Program

Stop Loss 201
Date, Presenter
1
Welcome to Stop Loss 201
Important Reminders Before We Begin
Thank you for coming!
Please sign roster now, and fill out all information
This is the Stop Loss 201 course for two credits
You must be present for entire course to earn credits
Sales and Internal Company Procedures cannot be
used for CE credit
Here is the course outline
Let’s begin!
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2
Stop Loss 201
Presented By:
 Title
 Experience
 Education/License
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3
STOP LOSS 201 - AGENDA
 Stop Loss Review
– Why Do Customers Need Stop Loss?
– Stop Loss Products
– Marketplace Review
– Firm vs. Contingent Quote
– Value of Integration
– Premium Stop Loss Products
 Trend
– Catastrophic Trend
– Major Stop Loss Drivers
– Leveraged Trend and Differences by Pooling Level
– Suggested Pooling Levels
 Volatility
– Capital Requirements
– Years Between the BIG Claim
– Credibility
– Experience Rated vs. Pooled Methodology
 Conclusion and Case Study
Confidential, unpublished property of CIGNA. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2008 CIGNA
4
Why Stop Loss
Why Stop Loss
Stop Loss Customers Include:
 Self-insured (ASO), mid-sized customers
 Customers moving from insured to ASO plans
 National account customers who are risk averse or have smaller
cost centers structured under the parent company
What do Stop Loss products provide?
 “Sleep insurance”
 Protection from the impact of high dollar
claims on their cash flow & experience
 A level of predictability for medical
claim expenditures
Confidential, unpublished property of CIGNA. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2008 CIGNA
5
Stop Loss Products
Stop Loss Products
Individual Stop Loss (ISL) Definition/Concepts



Written with ASO plans in conjunction with an underlying medical plan
Protects an employer’s financial resources from large claims on any one
individual.
Customer’s liability is capped at a certain dollar amount on each individual
per policy year.
 Amounts below the pooling point are the customer’s liability
 Amounts above the pooling point are the Carrier’s liability
 Claims over the pooling point for an individual member are removed
from the customer’s experience & paid by the stop loss pool.
Pooling Point: $100,000
Total Claims
Customer Liability
Stop Loss Carrier
Liability
Individual 1
$150,000
$100,000
$50,000
Individual 2
$1,000,000
$100,000
$900,000
Individual 3
$275,000
$100,000
$175,000
$1,425,000
$300,000
$1,125,000
Total
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6
Stop Loss Products
Stop Loss Products
Aggregate Stop Loss (ASL) Definition/Concepts

Aggregate Stop Loss limits the ASO customer’s overall claim experience
for a policy year.

The customer’s liability is usually expressed in terms of a percentage of
total expected claims. Typically this is 125% but can vary based on
customer need.
 All claims up to this threshold are the customer’s liability, all amounts
over are the Stop Loss Carrier’s liability.

In most cases, ISL coverage must also be purchased. In some instances,
an “implied” ISL level can be used as an alternative.

Amounts paid by the employer, below the individual stop loss pooling
point, accumulate towards the ASL threshold.
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7
Stop Loss Products
Stop Loss Products
Individual Stop Loss & Aggregate Stop Loss Contract Types

New Business: Contracts are labeled according to (1) how claims are
incurred and paid and (2) how they accumulate to the pooling point.
The first number refers to the incurral period and the second number to
the paid period.
 12/12 (incurred in 12 / paid in 12) – Standard first year option




Run In Contracts: 15/12, 18/12, 24/12. Only available in first year.
Run Out Contracts: 12/15, 12/18, 12/24. Applies to termination
year only.
Renewal: Contracts can renew on a rolling basis or a paid basis. A
“paid” contract includes all claims incurred after the policy effective date
(while the contract is in effect) toward the pooling point in the year in
which they are paid.
 Rolling Contract: i.e. Rolling 12/15 (incurred in 12 / paid in 15)
Incurred Contract: 12/36 - Accumulates claims toward the pooling point
based on the year the claims were incurred, rather than the year they
were paid – matching employer liability
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8
Players in the Market
Players in the Market
 Managing General Underwriters


A group of our stop loss competitors who underwrite, act as a
gatekeeper for carrier selection and claims administration, select
reinsurance brokers to quote the business and eventually assign the
business to selected carriers.
MGU’s assess risk, but do not retain it.
 Direct / 3rd Party Carriers

A group of our stop loss competitors who provide stop loss coverage but
do not administer the customer’s medical benefit plan.
 Integrated Carriers

A group of stop loss providers that administer both the medical and
provide stop loss coverage.
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9
Players in the Market
Players in the Market
Common MGU / Direct Carrier Practices:

Strict disclosure on both new business &
renewals

Contingent Quote; no firm quotes until 30
days before the effective date

Lasers often required

Gaps in coverage (limitations, exclusions,
maximums in Stop Loss policy that are
different from the medical plan)

Conservative contract constraints

Strict claim submission requirements

According to the 2007 Towers Perrin Stop
Loss Survey close ratios on new business
were 3.4% and retention rates were 68%
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10
Disclosure Reporting
Disclosure Reporting
The practice whereby a carrier requires completion of a disclosure
form signing off on all known and emerging claims.
Sources for completing the form include pre-certification information, case
management notes, utilization review and claim files. Required
information includes:
 Diagnosis
 Current/Planned treatment patterns
 Prognosis
 Signature of an officer of the company
Information disclosed can be used to justify re-rating and
failure to provide complete disclosure may result in claim
denial.
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11
The Risk of a Contingent Quote
 Common practice among third party carriers is to issue quotes on an illustrative
basis
– Updated claim information is required 15 – 45 days prior to the effective date
– Based on updated information TPC may re-rate or laser any emerging
claims. On average, 10% of cases are re-rated based on updated claims
experience.
– Customer and Broker are left with unexpected changes on or about the
effective date
 The smaller employer groups are least likely to afford the risk of a contingent
quote due to these risks
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12
Firm vs. Contingent Quote
 Company XYZ has 200 employees
– Employers expected annual healthcare costs are $600K, ($500K medical,
$100K Stop Loss premium)
– Just prior to renewal, an early stage transplant patient develops on the plan
with an expected cost of $300K
– If this customer had a firm quote their costs would remain at $600K
– With a contingent quote, costs would increase to $900K, ($500K medical,
$400K Stop Loss premium), a 50% increase!
Employees
200
Healthplan Costs
$
600,000
Contingent
Healthplan Costs
$
300,000
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Impact
50%
13
The Value of Integration
The Value of Integration
 Comprehensive Coverage & Integration

Consistent with underlying medical plan in terms of limitations,
exclusions and maximums.
 Consistent standards for medical necessity, claims review and
payment
 Ease of Administration





Single point of contact
Faster reimbursements
Additional claim audit
Timely notifications and reporting
Typically no claim filing requirements
 Plus

Sensitive data remains with the medical carrier instead of being
distributed to multiple parties
 Accountability
 Risk Retention
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14
Premium Stop Loss Products
Premium Stop Loss Products
Incurred Accumulation Option (12/36)
 Accumulates claims toward the pooling point based on the year the claims were
incurred, rather than the year they were paid – matching employer liability.
 Once an individual hits the pooling point in a given year, all other claims incurred by
that individual within the year (paid within the 36 month paid period) will be covered.
 Eliminates the need for separate Run Out or Run In protection in the future &
eliminates the first year maturation adjustment.
 Example: ABC Company has elected Incurred Accumulation with a 1/1/08 effective
date. All claims incurred in 2008, paid by 12/31/10, will be grouped together for
purposes of comparison to the pooling point. At renewal, all claims incurred in 2009,
paid by 12/31/11, will be grouped together.
Incurred Accumulation
2008
1st Year
2nd Year
Jan-Jun
Incurred
Paid
2009
Jul-Dec
Jan-Jun
2010
Jul-Dec
Jan-Jun
2011
Jul-Dec
Jan-Jun
Jul-Dec
Incurred
Paid
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15
Premium Stop Loss Products
Premium Stop Loss Products
Guarantee of Insurability
Mature Example with Known Claimants at Renewal
Lives:
Pooling Point:
Contract Basis:
Claimants
800 Lives
$100,000
15/12 (mature)
No high dollar claimants at presale; 2 claimants at $250,000 each at renewal
With RP Option Without RP Option
Year 1: Pooling at $100,000
Rate
High Claimant Adjustment
Renewal Planner Adjustment
Total Rate
Annual Premium
Year 2: Pooling at $110,000
Rate
High Claimant Adjustment
SubTotal
Renewal Planner Adjustment
Total Rate
Annual Premium
$50.00
0
5.00
$55.00
$528,000.00
$54.00*
0
$54.00
4.50
$58.50
$561,600.00
Difference
$50.00
0
0
$50.00
$480,000.00
0
0
(5.00)
(5.00)
($48,000)
$54.00*
30.00
$84.00
0
$84.00
$806,400.00**
0
30.00
$30.00
(4.50)
$25.50
$244,800
* Rate assumes 8% medical increase
** If sold as immature, the rate would have been adjusted for maturation. If no PPT increase, addt’l adjustment for leveraged trend.
Impact: By purchasing the RP option in year 1 for $48,000 in premium, in year 2 the client avoids:
- Lasering the high dollar claimants & thereby assuming the $280,000 potential claims OR
- Premium adjustment of $30/mo to accommodate the high dollar claimants, resulting in a difference of
$244,800.
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16
Impacting the Rate: Contract Nuances
Premium
“No Gap”
Coverage
“Buy Down”
Options
Potential Gaps in Buy Down
Coverage
Quote
Terms
Firm quote
Contingent
quote
Last minute re-rating
Lasering
No lasers
applied
Lasers applied
to known
claimants
Additional customer liability
between case PPT and laser
Maximums
Mirror
medical plan
Separate
maximum
applied
Additional customer liability
over applied maximum
Run In Cap
Unlimited
maximum
Maximum
applied
Additional customer liability
over applied maximum
Contract
Type
Paid
Pharmacy
Included
Rolling
Excluded
Year-to-year protection
May reduce reimbursement
amount on high claimants and
may reduce the number of
claimants eligible for
reimbursement
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17
Trend
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18
Catastrophic Claim Drivers
Catastrophic Claim Drivers
The frequency of jumbo claims is defined as a member incurring
medical claims of $1 million or more in a year, increased ten-fold
from the year 2000 to 2005, from less than 1/10th of one member
per 100,000 health plan members to 1.1 per 100,000 members in
2005 *
Common drivers for catastrophic claims include:

Neonatal Care

Cancer Treatment and Care

Trauma / Burn Victims

Severe Cardiovascular conditions

Transplants

Hemophilia and Genetic Disorders (Multiple Sclerosis)

Specialty Drugs and Therapies
* Source: Evergreen Re study published in the 9/16/07 MyHealthGuide Newsletter
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19
Stop Loss Claim Drivers by Pooling
Level
40%
35%
30%
25%
$100,000
20%
$250,000
$500,000
15%
10%
5%
0%
NICU

Cancer
Transplants
Cardiovasular Trauma / Burns
High Cost
Drugs
Other
As the pooling level increases the drivers of Stop Loss Claims change
– NICU costs drive a much greater percentage of overall stop loss claims as the pooling point
increases
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20
Catastrophic Claim Drivers
Catastrophic Claim Drivers
 Inpatient expenses drive 60% of all Stop Loss claim costs
• With the effect of leveraged trend the increase of inpatient costs for
stop loss claims is between 12% and 24%
• An example of a catastrophic inpatient claim is premature births
• Inpatient costs can drive as much as 70% - 80% of all stop loss
claims as the pooling point increases
First Dollar
Trend
Percent of First
Dollar Claims
Leveraged
Trend
Percent of SL
Claims
Inpatient
8%
30%
12% - 24%
60%
Outpatient
8%
30%
12% - 24%
20%
Professional
5%
35%
8% - 15%
5%
High Cost Drugs
15%
1%
23% - 45%
10%
Other
10%
4%
15 - 30%
5%
Total Trend
9%
100%
14% - 27%
100%
Service
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21
Catastrophic Claim Drivers
Catastrophic Claim Drivers
Premature Births

According to the March of Dimes, most pregnancies last around 40 weeks.
Babies born between 37 and 42 completed weeks of pregnancy are called
full term. Babies born before 37 completed weeks of pregnancy are called
premature.
–

About 12.5 percent of babies (more than half a million a year) in the
United States are born prematurely
• (1). For reasons that doctors don't fully understand, the rate of
premature birth has increased by more than 30 percent since 1981
(1).
• Premature birth is a serious health problem.
• Premature babies are at increased risk for newborn health
complications, as well as lasting disabilities, such as mental
retardation, cerebral palsy, lung and gastrointestinal problems,
vision and hearing loss, and even death.
• Many premature babies require care in a neonatal intensive care
unit (NICU), which has specialized medical staff and equipment
that can deal with the multiple problems faced by premature
infants.
NICU Costs represent 35% of all stop loss claims > $500K
1. Martin, J.A., et al. Births: Final Data for 2004. National Vital Statistics Reports, volume 55, number 1, September 29,
2006.
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Facility Differences
 Contracting arrangements with local Hospital drives a portion of Stop Loss rates
 Hospital average cost per day
– The average cost per day for hospital admissions is between $3,000
and $3,500
– The average non-catastrophic cost per day is about $2,000
– Average catastrophic cost per day is about $6,000 and can be as high
as $12,000 - $15,000 per day
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23
Facility Differences
% of Claims at Different Types of Facilities
Facility Type
First Dollar
Stop Loss
30%
45%
Tertiary
30%
45%
Teaching
40%
10%
Community Hospital
100%
100%
Total
 Hospital costs increase each year but the increases vary by facility type
– The average trend at a Community Hospital is about 5%
– The average trend at Tertiary and Teaching Hospitals is about 8%
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24
Catastrophic Claim Drivers
Catastrophic Claim Drivers
 Outpatient services drive 20% of all Stop Loss claim costs
• With the effect of leveraged trend the increase of outpatient
costs for stop loss claims is between 12% and 24%
• An example of a catastrophic outpatient service is a cancer
diagnoses receiving chemotherapy. Members in this treatment
regiment can range from 50K - 150K in the majority of cases. In
cases where cancer has spread to multiple organs it is not unusual to
see claims in excess of 250K
First Dollar
Trend
Percent of First
Dollar Claims
Leveraged
Trend
Percent of SL
Claims
Inpatient
8%
30%
12% - 24%
60%
Outpatient
8%
30%
12% - 24%
20%
Professional
5%
35%
8% - 15%
5%
High Cost Drugs
15%
1%
23% - 45%
10%
Other
10%
4%
15 - 30%
5%
Total Trend
9%
100%
14% - 27%
100%
Service
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25
Catastrophic Claim Drivers
Catastrophic Claim Drivers
 High cost Drugs represent 10% of stop loss claims on average
 These drugs can run as high as $3 million for individualized cancer
therapies. Given the highly individualized nature of certain high cost drugs,
these drugs are produced on a as needed basis with minimal
manufactures to help control cost
• In 2004, high cost drugs represented only 4% of total stop loss
claims vs. 10% today
• A hemophilia patient receiving factor replacement can quickly
increase significantly if a claimant develops antibodies and requires
greater than normal factor 8 replacement doses
First Dollar
Trend
Percent of First
Dollar Claims
Leveraged
Trend
Percent of SL
Claims
Inpatient
8%
30%
12% - 24%
60%
Outpatient
8%
30%
12% - 24%
20%
Professional
5%
35%
8% - 15%
5%
High Cost Drugs
15%
1%
23% - 45%
10%
Other
10%
4%
15 - 30%
5%
Total Trend
9%
100%
14% - 27%
100%
Service
Confidential, unpublished property of CIGNA. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2008 CIGNA
26
Leveraged Trend
Leveraged Trend
180,000
160,000
140,000
120,000
100,000
75,000
Stop Loss
Carrier Cost
increases 20%
90,000
Stop Loss Carrier
80,000
Customer
60,000
40,000
75,000
20,000
Customer Cost
is Flat
75,000
0
1
2
Assume that in your current year, the plan has a $75,000 pooling point and there is one
employee with a $150,000 claim. The customer funds the first $75,000 and the stop loss
carrier funds the remaining $75,000. If medical trend is 10%, the same $150,000 claim would
increase to $165,000 in the following year. The customer would still fund the first $75,000 but
the stop loss carrier would pay $90,000 – an increase of 20%
In addition, a $75,000 claim (which does not hit the pooling point in the current
year) becomes a $82,500 claim in the following year and the stop loss carrier is
liable for claims it didn’t have to cover at all the year before
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27
Leveraged Trend Effect on Pooled and
Unpooled Claims
Unpooled
Claims
Total Claims
Pooled Claims
% Pooled to
Total
Total Trend
Unpooled Trend Pooled Trend
Year 1
$
1,000,000
$
900,000
$
100,000
10%
Year 2
$
1,100,000
$
980,000
$
120,000
11%
10.0%
8.9%
20.0%
Year 3
$
1,210,000
$
1,066,000
$
144,000
12%
10.0%
8.8%
20.0%
Year 4
$
1,331,000
$
1,158,200
$
172,800
13%
10.0%
8.6%
20.0%


The example above looks at a 10% claim trend over a 4 year period
– The overall pool increases 10% each year
– The Stop Loss Carrier covers a greater percentage each year while the unpooled
percentage will actually decrease
As you can see in the graph below the pooled claim dollars will expand at a higher pace when
compared with the unpooled if no changes are made to the pooling level
Pooled vs. Unpooled Claim Trend
Pooled Claims
Unpooled Claims
$180,000
$1,200,000
$170,000
$1,150,000
$160,000
$1,100,000
$150,000
$1,050,000
$140,000
$1,000,000
$130,000
$950,000
$120,000
$900,000
$110,000
$850,000
$100,000
$800,000
Year 1
$90,000
Year 2
Year 3
Year 4
$80,000
Year 1
Year 2
Unpooled Claims
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Year 3
Year 4
Pooled Claims
28
Leveraged Trend
Leveraged Trend
Leverage Trend is not a number, rather it’s a range of numbers
 Lower Pooling levels have leveraged trend as low as 12 – 14%
 Higher Pooling levels have leveraged trend as high as 30 – 40%
The reason for this differential is the effect of deductible leveraging
Claim $ Amount
Pooling Level
SL Claim $ Amount
2007
300,000
50,000
250,000
2008
330,000
50,000
280,000
% Change
10%
0%
12%
Claim $ Amount
Pooling Level
SL Claim $ Amount
2007
300,000
200,000
100,000
2008
330,000
200,000
130,000
% Change
10%
0%
30%
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29
Increased Pooling Level Impact
Increased Pooling Level Impact
The best way to control leveraged trend is through increasing the pooling
level. There is always a concern about the additional risk driven by the
increase in pooling level. While it does increase customer liability, it may
be more cost effective to do this than to receive an increase in premium to
maintain the lower pooling point.
For most health plans, a 10% increase in pooling level doesn't impact the
overall risk for the health plan by much. As a result, a strategy of
consistent increases in line with medical trend to the pooling level each
year is most practical.
# Large Claims
0
1
2
3+
$200,000 Pooling Level
Total Plan Cost
Likelihood
$4,500,000
20%
$4,700,000
40%
$4,900,000
20%
20%
$225,000 Pooling Level
Total Plan Cost
Likelihood
$4,450,000
23%
$4,675,000
41%
$4,900,000
23%
13%
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30
Example - Pooling Level Impact
Example – Pooling Level Impact
Exhibit I below looks at the effect of raising the pooling level each year in
line with medical trend (estimated at 10% in the example). The premium
savings generated in this example is $133,650, the question becomes is it worth
the additional risk?
Exhibit I
Years
1
2
3
4
5
$
$
$
$
$
$
Premium
100,000
120,000
144,000
172,800
207,360
744,160
$
$
$
$
$
$
Premium
100,000
110,000
121,000
133,100
146,410
610,510
Years
1
2
3
4
5
$
$
$
$
$
Pooling Level
75,000
75,000
75,000
75,000
75,000
Leveraged Trend
20%
20%
20%
20%
20%
$
$
$
$
$
Pooling Level
75,000
82,500
90,750
99,825
109,808
Leveraged Trend 20%
Reduced to 10%
10%
10%
10%
10%
10%
Premium Savings
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$ 133,650
31
Example - Pooling Level Impact
Example – Pooling Level Impact
Exhibit II below shows the effect on claim payments of the annual
increase in pooling level. If we assume 1 claimant each year with a base
of $100,000 this customer would end up with over $50,000 of savings during
the 5 year period.
Exhibit II
Years
1
2
3
4
5
$
$
$
$
$
$
Years
1
2
3
4
5
$
$
$
$
$
$
Premium
100,000
120,000
144,000
172,800
207,360
744,160
Premium
100,000
110,000
121,000
133,100
146,410
610,510
$
$
$
$
$
$
$
$
$
$
Pooling Level
75,000
75,000
75,000
75,000
75,000
Pooling Level
75,000
82,500
90,750
99,825
109,808
$
$
$
$
$
$
$
$
$
$
1 Claimant
125,000
137,500
151,250
166,375
183,013
1 Claimant
125,000
137,500
151,250
166,375
183,013
Added Employer
Liability
$
$
$
$
$
7,500
15,750
24,825
34,808
82,883
Net Savings
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Premium
Savings
$
133,650
$
50,767
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Sample Renewal Rate Reductions
Original Pooling Point
Range
Polling Point Change
$40,000 - 100,000
$
2,500
$
5,000
$
10,000
$
15,000
$100,000 - 250,000


$
$
$
$
Mature Rate Reduction
-2% to -5%
-6% to -10%
-11% to -19%
-15% to -28%
5,000
10,000
15,000
25,000
-2% to -6%
-6% to -11%
-8% to -15%
-13% to -25%
Changes in the pooling point will reduce fixed premium costs
– As shown in the chart above for customers with mature claim experience and a pooling
level of $75,000 a $10,000 increase in pooling level will reduce their stop loss premium by
11 – 19%
– For customers with a pooling point over $200,000 a $25,000 increase in pooling level will
lower rates by up to 25%
By increasing the pooling point customers will reduce stop loss premiums and also save on
premium tax
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33
Recommended Pooling Levels


Although each employer will have their own risk threshold we do have recommend pooling levels by
employer size
– Key is to balance stop loss ISL costs with the customers risk
– Keep risk threshold consistent each year by increasing the pooling point in line with medical
trend
The chart below represents recommended pooling levels for a variety of employer sizes
– Assumption is $6K PEPY in annual claim costs
– The target pooling point and ranges should increase about 10% per year
Stop Loss Pooling Point Guidance
Number of
Employees
250
500
750
1,000
2,000
2,500
Mature
Claim Pick
$1,500,000
$3,000,000
$4,500,000
$6,000,000
$12,000,000
$15,000,000
$45,000
$90,000
$135,000
$175,000
$360,000
$450,000
Acceptable Pooling Range
To
To
To
To
To
To
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$90,000
$180,000
$270,000
$360,000
$720,000
$900,000
34
Summary Pooling Point Guidance
3 Actions to Mitigate the Renewal Rate Increase
 Eliminate the Maturation Adjustment on First Year Business
 Purchasing a Run In or Run Out contract in the first year eliminates the
second year maturity adjustment. Another option is to sell on a mature
contract basis.
 Mitigate the Effect of Leveraged Trend
 Pooling points should increase annually to mitigate the effects of
leveraged trend
 Eliminate Adjustments for Ongoing Claims
 Adjustments for ongoing claims can be eliminated with products
designed to guarantee a level of predictability for renewal rates
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35
Volatility
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36
Capital Requirements / Government
Regulation
 Capital requirements and government regulations drive much of the
cost in the stop loss marketplace
– Based on the rating of the Stop Loss Carrier and state insurance
department regulations 40% - 55% of every dollar of revenue is
required to be allocated to reserves.
– Each state has specific filing requirements which drives higher
administrative fees
– Premium Tax
– Some states levy special assessments for uninsured residents
 Consequently the industry prices to a 68% loss ratio
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37
Predicted Loss Ratio
 Past loss ratio experience is
not credible; ongoing claims
have higher credibility and
present selection risk
 Typical Loss Ratio
experience shows that a case
has a 1 and 4 chance of falling
into each of the following loss
ratio buckets
Loss Ratio
Percent of Cases
0%
25%
0-40%
25%
40-100%
25%
100% or more
25%
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38
Average Number of Years Between the
Big Claim
Years Between a Large Claim
Group Size
(Members)
Claim of $250K
Claim of $500K
Claim of $1M
250
14
21
29
500
8
12
16
1000
3-4
4-6
7-8
2000
0-2
2-3
3-4
 The overall stop loss pool increases by leveraged trend annually
–
–
Some clients will look at their three or four years of experience, and expect a rate pass
for “good experience”
How good would their experience be if they were the one with the really big claim?
 The chart shows how often, on average, a client should expect to be the one with the really
big claim
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39
Expected # of High Claimants
Claimants
Expected # of High Claimants
16
14
12
10
8
6
4
2
0
15
6
2
Year
2001

2008
2015
Based on a 2,500 life group the above example shows the expected number of
claimants that would exceed a pooling level of $100,000
–
–
The expectation is this customer would have 2 members above the pooling
level in 2001
If the same pooling level is retained, the number of members exceeding
the pooling level would grow exponentially over the years
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40
Expected Claims by Pooling Level
Number of Expected Claims per 1,000 lives
Pooling Level
Expected Claimants
Network
OAP
50K
5.8
7.0
100K
2.0
2.8
150K
1.0
1.3
200K
0.8
0.8
250K
0.4
0.5
500K
0.1
0.2
 Based on prior claim experience we can predict the number of claimants a group
will have by pooling level
 As a customer increases their pooling point the risk of members reaching the
pooling level decreases which will translate to lower stop loss premiums
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41
Pooled Risk vs. “Known Risk”



Overall, stop loss experience is pooled to obtain a manual rate
– An individual employer group’s demographics and geographic location will drive an
adjustment to the manual rate
– Known claimants would be factored into the premium through either a claim load or laser
– If there are no known risks in the population the employer group may receive a reduction
in their rates
When obtaining a contingent stop loss rate an employer is taking a risk on potential high dollar
claimants developing after their initial rate quote
– An example of this is a customer that has favorable demographics and geography and
receives a favorable reduction in their manual rate
– However, If the employer does not get a firm quote they will be subject to being
underwritten again within 30 days of the policies inception
• Should a potential claimant over the pooling level develop, it would result in a
increase in the rate or a Laser on that member
The frequency of known claimants developing later in the year is about 20%
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42
Lifetime Max and HRA / HSA Plans
 Policy and lifetime maximums
– With no separate maximum there is full coverage of eligible claims paid
under the benefit plan
– Many specialty carriers standardly quote a maximum on ISL and ASL
– Unexpected risk can be catastrophic eliminating the protection the employer
was expecting
 Effect on rates with a H R A / H S A
–
–
–
–
Effect on stop loss rates is minimal
Claim pick will change slightly
Largest impact is an increase to out of pocket maximums
Minimal effect in the short term but may reduce future claim risk
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43
Value of Provider Network and
Transplant Contracts
 According to a 2006 study by Milliman, the average organ transplant
costs $328,000 and can rise dramatically with complications
– Transplant coverage is included in the underlying plan with most
Integrated carriers
• Case management is consistent throughout member treatment
• Negotiating power of integrated carriers can lead to lower
overall costs for employers
– Some employer’s purchase carve out transplant services which
require members to use a different network
• Contract language can restrict members to only one transplant
which could shift liability back to the employer
• Restrictive language can eliminate payment and leave the
employer at risk
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44
Case Management Notes
Release of Case Management Notes

Carriers will provide the succeeding carrier information, at the customer’s request, once
signed agreements are in place to ensure that personal health information (PHI) is disclosed
appropriately.
The following information is normally released, at the customer’s request
–
–
–
–

Member name, address, social security number, and relationship to the account subscriber
Diagnosis (for ASO accounts only)
Hospital name (if patient is currently in hospital, for ASO accounts only)
Servicing provider information (name, specialty, address, for ASO accounts only)
Prognosis information is not provided.
– This information is subjective in nature and does not take into consideration how individuals respond
to care plans
– Most carriers will not project which members may incur claims who will exceed the pooling point,
including projected members on transplant lists, in case management or diagnosed with specific
illnesses that may exceed the pooling point
– These projections are subjective and may be inaccurate due to the unpredictability of how individuals
may respond to specific illness or conditions
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45
Case Study - Handout
Let’s put it all together

Sample Case
– Large Retailer
– 1,000 Employee’s / 2,000 Members
– Demographic Factor of .90
• 53% Female
• 47% Single
• 21% Married
• 32% Family
– Main Locations in Texas
– Current Pooling Point = $150K
– Paid Contract 48 / 12
– Medical Trend = 8%
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46
Case Study
You are the current benefits consultant for an employer who has 1,000 employees.
They are in the process of renewing their individual stop loss policy for the upcoming
policy year. The employer has asked for your expertise in understanding what to
expect for their upcoming stop loss renewal.
1. The employer is interested in helping to control
fixed costs, and would like a recommendation on
what pooling level makes the most sense for their
health plan. The current individual stop loss
pooling level is $150K. Which of the following
would you recommend, and why?
A.
B.
C.
D.
$150K
$165K
$175K
$200K
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47
Case Study
2. Assuming the employer implements your
recommendation in the previous question regarding
pooling level, what level of increase in their stop loss
rates should this employer expect in their renewal?
A. -18%
B. -10%
C. +2%
D. +15%
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48
Case Study
3. When looking at their stop loss renewal, the employer has noticed the fact that
they’ve had individual stop loss coverage for 5 years, and haven’t had a claim
greater than $500K. As a result, the employer would like to know why their
stop loss premium continues to be high given that they haven’t had any
significant large claims. As the consultant for this employer, what’s the most
likely explanation for why this may be occurring?
A. Stop loss is a pooled product
B. Catastrophic claims aren’t credible enough to experience rate a group of
this size
C. Considering that a group of 1000 employees is likely to have a claim
greater than $500K once every 6 years, this group’s experience is
actually fairly normal when compared with the actuarial expected value of
large claims
D. All of the above
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49
Case Study
4. The benefit manager has been networking with peers from other companies
and has been informed that if they go with XYZ Stop Loss Insurer, they
could save 10% in fixed costs versus their current stop loss contract. They
are also aware that XYZ Stop Loss Insurer requires disclosure, while their
current stop loss carrier has offered a firm renewal 4 months in advance of
their policy effective date. The employer has come to you for advice.
Which of the following recommendations best describes the current
situation?
A. It’s in the employer’s best interest to move the stop loss business to company XYZ,
as 10% savings is a lot of money and likely to be a better deal for the employer.
B. It’s something the employer can consider as an alternative, though there’s a reason
why the stop loss rates for XYZ Stop Loss Insurer are 10% lower, and it’s driven by
disclosure and the option to laser or deny claims, which would otherwise be
covered under a firm renewal.
C. From prior experience, company XYZ has never re-rated an account based on
disclosure, so it’s not something the employer should be concerned about.
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50
Questions
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Next Steps
 Before you leave, please make sure you’ve completely filled out and signed
the roster- include all information
 Print legibly and include your full name, work address, work telephone
number, name of company
 Complete the evaluation form
 You should receive your certificate within three weeks
Thank you!
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