Frequently Asked Questions (FAQs)
Stop Loss Insurance
Stop Loss Insurance
Stop loss insurance, also known as excess loss insurance, is a critical component of self-funded healthcare plans. A stop loss policy serves as a financial safety net for employers by protecting their health plans from unexpectedly high claims or catastrophic medical expenses incurred by plan participants. There are two types of stop loss insurance, aggregate stop loss insurance and specific stop loss insurance.
Specific stop loss insurance is a type of coverage designed to protect self-funded plans from large individual claims made by plan participants. Unlike aggregate stop loss insurance, which covers the total claims amount exceeding a predetermined threshold for the entire group, specific stop-loss insurance applies to individual claimants that exceed a specified dollar amount, known as the specific deductible. Once an individual claimant surpasses this threshold, the insurance carrier reimburses the health plan for the excess amount, up to the policy's maximum limit.
Aggregate stop loss insurance provides financial protection to self-funded plans from excessive claims costs borne by the entire health plan. It kicks in when the total claims expenses incurred by the group exceed the aggregate deductible. Once this threshold is surpassed within a specified policy period, typically a year, the insurance carrier reimburses the health plan for the amount exceeding the threshold, up to the policy's maximum limit. Aggregate stop-loss insurance helps employers mitigate the risk of unexpectedly high healthcare expenses, ensuring financial stability and predictability in managing their self-funded health plans.
A stop loss policy refers to the formal agreement or contract that outlines the conditions and limits of stop-loss insurance. It specifies the coverage, how the stop-loss is triggered (e.g., the specific number of claims that trigger the coverage), and the exclusions or limitations.
A stop-loss carrier is an insurance company that provides coverage to employers who self-fund their employee health plans, protecting them from potentially catastrophic or unexpected medical claims that exceed a certain threshold.
Stop loss underwriting involves assessing the risk and setting premiums and aggregate factors and establishing terms for stop loss policies. Insurers evaluate factors such as the health plan's claims history, industry, the demographics of plan participants, and desired coverage levels. Individual and aggregate attachment points are determined based on these factors. For specific stop loss insurance, underwriters analyze individual claim patterns to set appropriate deductibles. For aggregate stop loss, they consider the group's overall claims experience. Premiums are then calculated to cover potential claims.
Reinsurance is a risk management strategy used by insurance companies to protect themselves against large financial losses resulting from high claims or catastrophic events. In reinsurance, insurance companies transfer a portion of their risk to another insurer, known as the reinsurer, in exchange for payment of a premium. Reinsurers assume liability for a portion of the original insurer's policies, helping to spread risk across multiple entities. This enables insurers to manage their exposure to large or unexpected losses, maintain financial stability, and continue providing coverage to policyholders.
Health Plans
Health Plans
A self-funded health plan is a health insurance plan where a plan sponsor, typically an employer, assumes the financial risk for providing healthcare benefits to the plan participants. Instead of paying fixed premiums to an insurance carrier, the plan directly covers the cost of participants' medical claims and administrative expenses. Self-funded health plans offer flexibility in plan design and cost management, as plan sponsors have more control over benefit offerings and claims data. To mitigate risk, plan sponsors often purchase stop loss insurance to protect against large claims.
A level-funded health plan is a hybrid self-funded plan that combines aspects of both fully insured and self-funded plans. With a level-funded plan, plan sponsors pay a fixed monthly premium to a third-party administrator (TPA), who manages the plan on its behalf. The TPA uses a portion of the premium to cover administrative expenses and claims processing, while the remainder is deposited into a claims fund. If claims expenses exceed the deposited amount, stop loss insurance kicks in to cover the excess.
Underwriting
Underwriting
An MGU or Managing General Underwriter, is a specialized insurance entity that provides underwriting and administration support for the carriers they represent. MGUs are typically granted authority to evaluate risks, determine coverage terms, set premium rates and factors for specific insurance products or classes of business, issue policies, and adjudicate claims on behalf of the carriers they represent. The amount of authority granted to MGUs by the carriers they represent may vary greatly.
A stop loss underwriting firm evaluates and assesses risks associated with stop loss insurance policies. They analyze various factors such as the employer's claims history, industry, and desired coverage levels to determine appropriate premiums. Stop loss underwriters play a vital role in providing tailored coverage that meets the financial needs and risk tolerance of self-funded employers.
In stop-loss insurance, the "aggregate corridor" is the difference between the expected total claims amount and the attachment point, which is the point where aggregate stop-loss coverage kicks in and reimburses the employer for claims exceeding that amount.
A "laser" is a risk management tool used in stop-loss insurance underwriting within self-funded plans. It involves applying a higher individual deductible to specific individuals identified as having a higher risk of incurring large claims, rather than applying an increased standard deductible to the entire group.
Captives
Captives
A captive is a type of insurance arrangement where a group of businesses form their own insurance company to provide coverage for their employees’ health benefits. The captive insurance company is owned and controlled by the businesses that use it, and it helps them manage the financial risks of self-insuring health benefits.
Group captives, sometimes referred to as a consortium or a shared risk arrangement, operate as specialized insurance entities to underwrite the risks of participants of the captives. They function similarly to traditional insurers but with a focus on insuring the risks of their owners rather than third-party clients. If structured properly, captives can provide customized coverage, cost savings, and greater control over risk management strategies.
Misc.
Miscellaneous
Cell and gene therapy protection refers to insurance coverage designed to mitigate the financial risks associated with the development, manufacturing, and distribution of cell and gene therapies. These therapies, which involve manipulating patients' genetic material or cells to treat diseases, present unique challenges and uncertainties. Cell and gene therapy protection coverage may provide financial protection for various aspects of the therapy lifecycle, including clinical trials, product liability, intellectual property risks, and supply chain disruptions.
Reference-based pricing is a strategy that sets payment rates for medical services based on a predetermined benchmark, typically the cost of the service or a percentage above Medicare rates. Instead of relying on negotiated rates with providers, reference-based pricing establishes a transparent pricing framework, often tied to publicly available data. When patients receive care from providers who charge more than the reference price, they may be responsible for paying the difference or negotiating with the provider for a lower rate. This approach aims to control healthcare costs, promote price transparency, and empower patients to make informed decisions about their care.
A Minimum Essential Coverage (MEC) plan is a type of self-funded plan of benefits that meets the Affordable Care Act's (ACA) requirement for individuals to have health coverage. MEC plans provide basic healthcare benefits, including preventive services, emergency care, and essential health benefits outlined by the ACA. While MEC plans offer essential coverage, they may not cover all healthcare needs, such as prescription drugs or specialist visits. However, they still help to fulfill the ACA's mandate for employers to provide health insurance coverage for their employees.
A Summary of Benefits and Coverage (SBC) is a standardized document that provides a concise overview of a health insurance plan's key features and coverage details. Required under the Affordable Care Act (ACA), the SBC helps individuals understand their health insurance options by presenting information in a clear, consistent format. It includes details such as coverage limits, deductibles, copayments, and examples of common medical scenarios to illustrate how the plan works.
Medical Loss Ratio (MLR) rebates are refunds issued by health insurance companies to policyholders when the insurer's spending on medical claims and healthcare quality improvements falls below a certain threshold outlined by the Affordable Care Act (ACA). The ACA requires insurers to spend a specified percentage of premium revenue on healthcare services and quality improvement activities, known as the Medical Loss Ratio (MLR). If an insurer's MLR fails to meet the minimum threshold, typically 80% for individual and small group plans and 85% for large group plans, they are required to issue rebates to policyholders.