Probably the single most important financial aspect of your plan (other than claims of course) are the stop loss contracts and costs offered by a reinsurer.  Whether you have a bundled plan offered by one of the BUCA insurance companies (Blue Cross, United, CIGNA, Aetna), or an unbundled plan with independent vendors and programs – hopefully utilizing Best In Class vendors as we have previously discussed – it’s extremely important to have the correct, and most appropriate contracts and pricing in place.

Depending on the size of your group, some BUCA carriers will allow you to utilize specific independent stop loss carriers for your plan.  This can be very beneficial to a group, in that it allows you the ability to shop the marketplace (albeit abbreviated) and compare and contrast these contracts and pricing with the ones offered by the insurance company.

If you are unbundled or are considering an unbundled plan, this is an inherent and integral piece of the plan every year.

Here are several fundamental questions you should ask yourself when evaluating stop loss programs.  The first is:

Who is going to shop the marketplace?  Is my broker going to go out to market, or is my Third Party Administrator (TPA) going to do it?  Most brokers will rely on the TPA to do the shopping for a variety of reasons.  There is a two way approval process for TPAs and reinsurers to work together; the TPA has to abide by the stop loss contract when paying claims; TPAs typically only work with limited reinsurers that they are comfortable with and have a relationship; financial rating of the reinsurer; direct writer or Managing General Underwriter (MGU); and plenty of other reasons.

Who are these reinsurers?  When working with a TPA, you can generally be assured that the reinsurers that they work with have a track record of working well together.  Whether it’s disclosure of claims for renewal quoting purposes, submitting claims timely, reimbursements being paid timely, etc., Best In Class TPAs have good handle on them.  If your broker is quoting stop loss, you need to know the financial rating of the carrier, is it a direct writer or MGU, how big is their book of business, and many other questions.  At the end of the day, you are paying a premium to have them cover claims and reimburse the plan in a timely manner.

What is the appropriate contract for your plan?  Too often I see very inappropriate contracts in place, leaving the plan at risk due to ‘incurred and paid’ time frames.  Regardless of who is shopping and placing stop loss for the employer, there are many contracts that are not ‘air tight’.  An example of that is when an employer has what is referred to as a 12/15 contract for their specific or aggregate.  Incurred in 12 months, and paid in 15 months is all too common in plans.  While this type of contract has some protection for run-out claims from 1 year to the next, it’s only for 3 months after the end of the incurred contract period.  What happens if the claim is paid after the 3 month period?  It’s not covered by stop loss!  Buyer beware!

Are the premiums and aggregate factors competitive in the marketplace?  While comparing the numbers is relatively easy, it’s largely dependent on the contracts that you are comparing.  One would think that if every reinsurer has the same data with which to quote, that everyone’s rates and factors would be within 5% or so of each other.  Obviously that’s not always the case.  This could be due to a number of issues – most commonly that they don’t all have the same data (or incomplete data) provided to them, and/or the amount of the commissions included (not recommended as you are overpaying), the stop loss contract provisions, perhaps non-disclosure of large claims information, what is covered under the contract, i.e. medical, prescription drugs, dental, vision, etc., and many other factors.

There are other questions that you should be asking regarding your stop loss contracts, but too numerous to cover here.  Buyer beware – you don’t want to be left holding the bag on this one and not getting the coverage you need, but think you have!

If you would like some advice and/or a review of your stop loss contracts, please feel free to give me a call.