Health reform in the United States has led to a significant increase in the number of employers that offer self-funded health benefit programs. As self-insured plans are generally free from state-governed insurance requirements, employers are able to provide more flexible and tailored coverage, which could result in cost savings. However, self-funding also comes with an increase in financial risk for employers. Those who go down this route should purchase employer stop loss insurance to hedge against a single catastrophic claim or an aggregate loss above and beyond the expected cost of their plan demographic.
The impetus for many employers opting to self-fund their health benefit programs was the introduction of the Affordable Care Act (ACA), which came into effect on January 01, 2014. When the ACA first came out, there was some uncertainty about what it would do to the fully insured group benefits market, which is the alternative to self-funding. A lot of people were infused into the fully insured market and premiums increased quite dramatically. As such, many employers decided it was a better financial play to manage and fund their plans internally, to avoid the overhead costs of fully insured plans and the cost of pooling with others who are potentially higher risk.
Employers who self-insure are responsible for all medical costs. For example, one virus that knocks out 30% of the workforce for 10 days, or two employees battling cancer and requiring novel $1 million drugs at the same time could result in medical costs that quickly surpass any financial backups or dedicated medical funds that the employer has set aside. This is where stop loss insurance – either on a specific loss or an aggregate loss basis – could come into play as a strong risk management tool.
“Risk managers need to make sure they have a really strong advocate for them in terms of how they’re constructing their self-insured plan design, and they need to work with a solid plan administrator,” said Theresa Galizia, chief underwriting officer, Ironshore Medical Stop Loss. “There are two core routes that plan sponsors can go down. They can work with a large ASO (Administrative Services Only) partner - that may or may not bundle the stop loss into the larger administrative offering - and those organizations are great, but they do have a tendency to pay claims very quickly, and not share much of their data.
“The alternative is the third-party administrator (TPA) market. TPAs will also administer the self-funded plan on behalf of the employer, but oftentimes they’re keener to work closer with the medical stop loss insurance carrier, viewing that carrier more as a partner and not just as a financial backstop. At Ironshore, when we have a good relationship with a TPA, they might pre-warn us that they’re about to pay a large claim for an employer so that we can look at opportunities to possibly negotiate a better discount or provide some form of cost containment services. We like the relationships that are more like partnerships, where we’re helping employers manage their financial risks.”
Self-funded employers need to consider the pros and cons of opting for a large ASO arrangement versus using the services of a more regional or local TPA. They should also ensure they’re working with a third-party that can give them access to a good healthcare network, Galizia stressed. That’s one of the core benefits of working with a large national ASO provider; they often have vast networks and good discounts.
Ironshore provides its self-funded employers access to an industry leading cross containment and risk management program called ProAct Care Solutions. Through ProAct, Ironshore provides clients access to a preferential network of healthcare service providers at competitive costs. ProAct also provides access to data and information to help clients make more informed decisions about the best way to manage their claims.
“The ProAct team helps clients gain access to specialized networks for a particular type of tertiary care service, for example transplants,” Galizia told Insurance Business. “As a medical stop loss carrier, we contract with the top four or five national transplant networks, we can get preferential pricing in terms of the access fees to go to those networks, and we can help the client essentially shop for the best deal. When I say shop, we’re not just looking at the financials of what it costs for the transplant, but we’re also looking at outcome data. If there are three facilities that might be possibilities for your patient’s transplant, we can give guidance to our clients on what it’s going to cost and the service outcome data at each facility so that they can make the most informed decision on the best action to take.
“If a client has a claimant that needs care outside of the designated network, we might have a relationship at that facility where we can call and say: ‘This claimant is coming to your facility for services. It’s a really high cost service. Can we talk about a better negotiation for a discount?’ And we have been successful in doing that. Another thing we offer is claim and bill review audits, especially on the larger claims in the range of $1 million or more. Any time services cost $1 million or more, that equates to thousands of lines of medical data to review, and these claims are prone to error. You’d be surprised how often they’re not 100% accurate, and so by providing audit services, we’re able to produce cost savings for our clients.”
When it comes to self-funded health benefit plans, employers really need to find partners – both on the plan administration and the stop loss insurance side – who understand their financial goals and can help them mitigate their financial risk.