There are many types of stop loss contracts and reinsurance companies on the market for your partially self-funded plan. It’s extremely important to know what you purchasing and what if any, exposures you might have. Most brokers rely on third-party administrators (TPAs) to market in place stop loss coverage for their clients. As a result, the actual contracts that are placed may not be appropriate for that particular client, but rather may pay a high commission. Here are the things that you need to know about stop loss.
When evaluating stop loss carriers, it’s extremely important to make sure you’re working with a carrier that’s highly rated financially. You are paying a premium for promise to pay a claim that exceeds a specific deductible and the aggregate attachment point in a timely manner. And with no headaches. Only select a carrier that has a A+, A, or A- rating.
There are other aspects of the contract you need to be aware of as well. They include the contract type, the excluded provisions, the size of their book of business, actively at work provisions, and eligibility, to name a few.
One of the most important aspects of the contract is the “incurred and paid” provisions or periods. All too often brokers will select an inappropriate or erroneous an incurred and paid period in order to show you a more competitive quote than their competition. This will result in some serious financial consequences and ramifications.
I remember a case that I worked on a couple of years ago whereby I did not get the business because my competitor had shown a lesser contract so the premiums and the attachment point was less, so the employer chose to go with it. When the group renewed the following year, the broker also quoted an inferior incurred and paid contract which resulted in lower premiums but it came back to bite the employer. What the employer didn’t know was that there were claims from the first year that were not paid in time, and didn’t fall under the subsequent year’s contract, so that in the subsequent year there were huge claims are not covered whatsoever because of the terms of contract.
When examining the incurred and paid periods under stop loss contracts are many options there are many scenarios to be taken into account – he largest of which has to account for the lagged claims. Lagged claims are when you occur an expense by a medical provider today, but isn’t paid for 45, 60, or 90 days from now. The claim must be incurred during the contract period in order to be considered for payment or reimbursement, and must be paid within the same period in order to be covered by the plan for reimbursement. Lag stirs the pot on the incurred and paid periods, particularly on a huge claim. Big claims are typically not paid in a timely manner – they take an extraordinary period of time to be incurred because of being a patient in a hospital or receiving long periods of treatment; more time is needed by the administrator so that they have all the detail before can be paid. While a claim could be incurred under the incurred portion but not paid during the timeframe and provision of paid, it could very easily fall through the cracks and be completely uninsured.
The other provisions need to be reviewed are those of “run in and run out” under in the incurred and paid time frames. This is especially important when changing carriers and renewals. Some contracts limit the amount that can apply to the “run in” period, while others may not. You have to make sure that nothing falls through the cracks here either. You want an airtight contract for every scenario.
When I review an employer’s aggregate and specific reports on a monthly basis from their administrator, I can usually see claims that were paid by the employer but not covered by stop loss. This is a serious mistake on the part of the broker recommending a particular contract that’s not airtight. If not, the employer could have additional risk exposure and significant, unexpected costs.
It’s also important to note that every reinsurer can work with every administrator and vice versa. So if your broker comes up with a quote from Wildlife of Wichita that looks very appealing to you, you better look further and see who the real insurer is and know if the administrator can work with them.
Unfortunately the brokerage business is one which is overpromised and under delivered.
You don’t know what you don’t know