For our clients with a January 1 benefit plan renewal date, we have begun the work required to determine the appropriate program strategy, negotiate renewals, create communication pieces and organize logistics for the open enrollment meetings and subsequent employee enrollments.
My company provides advisory services to both clients whom offer medical coverage through fully insured providers as well as those large enough to self-insure their medical plan with the services of a third party administrator. For self-insured clients, we typically administer both the Specific and Aggregate stop loss insurances.
The Specific insurance relates to employer protection against a specific large patient expenditure, while the Aggregate insurance relates to employer protection against catastrophic paid claim expenditures for the entire employee population. After the paid claims component, the stop loss insurance premiums are the second largest expense for companies who self-insure. As such, it is our responsibility as advisers to recommend the appropriate level of insurance given a company’s size, paid claims history, and risk profile.
In this particular blog entry, I will be discussing the general process Roller Consulting uses to evaluate if it may be financially appropriate to increase the Specific stop loss level. In the example that I will describe, the employer has a current Specific deductible level of $100,000 and the premiums for the specific stop loss insurance are $400,000 for the entire year.
As the renewal approaches, the employer has received notice that the stop loss insurance provider will be increasing the premium by 20% to $480,000 at the $100,000 Specific deductible level. The stop loss provider has also provided a second option for a $125,000 Specific deductible level with annual premiums of $400,000, or no increase over the current year. There are several key variables that we would analyze prior to making a recommendation to our client, they include:
- A three-to-five year historical analysis on the number of individuals that have exceeded the $100,000 Specific stop loss level during each contract year. By understanding the average number of high claimants each year, we can then project the impact of maintaining a higher level of risk versus a lower annual premium.
- The current number of high claimants (i.e., claimants with paid claims at over 50% of the Specific deductible level) and types of conditions associated with those high claimants. The conditions associated with the current high claimants provide us with information to understand if they might be ongoing or one time incidents. (i.e., a cancer patients vs. a severe accident patient).
- An understanding of the risk aversion of the client and cash flow position. In effect, a higher Specific stop loss level could create more outflows of paid claims earlier in the year and we must advise our clients of this.
Ultimately, there are many factors which go into the decision for increasing or decreasing the Specific stop loss deductible level; and we believe these to be most critical in providing us with the information necessary to recommend a solution for our clients.
Wojcik is director, financial analysis and reporting at Conshohocken, Penn.-based Roller Consulting. Visit their website
