We have created a medical stop-loss alternative that combines the best of aspects of commercial medical stop-loss insurance and individually self-insuring your stop-loss coverage. The primary goal of this program and its structure is to benefit its members financially, eliminating the profits and ever-increasing renewal rates of the commercial market. It’s like individual self-insurance, but rather than individually self-insuring, the program utilizes a Retrospective Funding Model to provide coverage to its pool of member organizations.
The cost for each member is comprised of three simple components:
1. Your allocated portion of the group’s claims
2. Your cost of excess insurance above the program’s pooled layer
3. Your portion of the program’s operating expenses
The primary benefit of this Retrospective Funding Model is the same as individual self-insurance – there are no carrier profits, surplus, or other margins built into the amount you pay. The program improves upon the financial efficiency of individual self-insurance in two ways:
1. You have protection against “shock claims”
2. Your risk is smoothed across many organizations and several years
Many organizations remain in the commercial stop-loss insurance market instead of self-insuring because they are concerned about “shock claims,” as they should be. With specialty drugs, genetic therapies, and other cutting-edge care becoming increasingly common, multi-million-dollar claims are no longer a rare occurrence. You should have stop-loss protection at some level. This program provides that protection.
Smoothing of Risk
When you individually self-insure your stop-loss, you are a pool of one. There is no smoothing of risk when high dollar claims arise. Year-to-year your medical plan and stop-loss costs likely fluctuate wildly. In a group program, your risk is smoothed by spreading the risk across other likeminded organizations. It is further smoothed by developing each member’s allocation of losses based on their most recent five years of claims experience. One bad loss year has less impact when bundled with four other years of better claims experience.
What’s the other benefit of considering the five most recent years of claims experience? You don’t get the compounding effect of commercial stop-loss insurance. In the commercial market, your rates will forever include that bad loss year. When was the last time your rates went down because your experience was good?
It is common for stop-loss carriers to increase their rates by 15-30% every year, regardless of the insured’s claims experience. In bad years, they may increase your rates by 50% or more. By smoothing the risk across a pool of members, considering five years of claims experience, and removing carrier profits and margins, your cost from year to year is less volatile than it would be in the commercial market.
To protect the program’s members from those shock claims we referred to earlier, each member has excess insurance above the program’s layer. This excess insurance is purchased as a group for the benefit of group pricing but is underwritten based on each member’s actual loss experience.
What’s the catch? Is the coverage less than what’s provided in the commercial market? Actually, the program’s members would suggest that the coverage is better than what’s available in the commercial market for one simple reason – the program is governed by the members themselves. If they don’t like something about the coverage, they vote to modify the coverage to meet their needs.
If you would like to learn more about this group stop-loss program, email us at firstname.lastname@example.org.