With the increase in popularity of self-insurance, health plan sponsors must take the time to fully understand the “safety net” that is typically purchased alongside these plans to protect them from unexpected costs.
There are two elements of stop loss: Individual (or Specific) Stop Loss (ISL) protects against the costs of any one claimant exceeding the preselected limit during the plan year; and Aggregate Stop Loss (ASL), which provides protection for all claimants exceeding the plan maximum that is usually set at 25% above expected claims.
A few things to worry about:
- Defining the coverage period is an area where many plans run into issues. Plans need to worry about run-in claims, which are claims incurred before the current plan year and paid during that year and run-out claims, which are claims incurred but unpaid as of the end of the plan year. Contract provisions will dictate how and if these claims are covered.
- The stop loss contract terms need to follow the terms of the underlying benefit plan. I have seen pre-existing condition and run-in liability limits and even plans that exclude protections for pharmacy claims.
- Stop loss contracts can limit or exclude coverage for known claims and one should note that applications for stop loss warrant that all known claims are disclosed to the insurer. If claims are omitted it could void coverage.
- If you have a reduction in your population during the plan year, watch out for minimum attachment factors for ASL coverage. This can be a costly feature in the event of a downsizing when claims are typically worse in any case.
I recently reviewed the Sun Life 5th Annual Research Report on catastrophic claims. It should be no surprise that claim frequency and severity are dramatically increasing. Cancers lead the list everywhere in the country with chronic end-stage renal disease following. The ACA change mandating unlimited coverage has made its mark on severity. 2.2% of Sun Life stop loss claims exceeded $1 million – and I have heard of a $15 million claim incurred during 2016. The 2018 report will likely highlight the high cost of pharmacy as the most rapidly increasing large claim factor.
This coverage is too important to not fully understand and even large employers should reconsider foregoing stop loss protection. The risk is too great to have an advisor who is less than expert.