Reinsurance and different specifics for an individual in a self-funded

[jeanine]

May a reinsurance company quote specifics for different individuals based on medical statements? By this I mean a reinsurance company looks at the medical statements of all enrollees and offers an aggregate total which is quite high. Then the reinsurer breaks it down so that every one in the plan has a specific (say $50,000) except for one individual who has a specific much higher. This is more affordable to the company than the aggregate that was quoted. There is something about this that makes me uncomfortable. I would appreciate any thoughts or sites on this. Does it matter that the plan is self-funded and the reinsurer is issuing a policy in Ohio? Is it state law that regulates the reinsurer? What about HIPAA and non-discrimination?

[Guest KGibson]

What has been done is called lasering out that individual. When self insuring, you only have to observe the Federal mandates, so the state issues are a mute point. As long as it is self insured not a minimum premium arrangement. I'm not an expert, however, one caution is always the cost the company will incur for the high claims on that individual. With good cash flow for timely claims payment, your company may be comfortable in accepting that additional claim risk. That is shifting the risk off the reinsurer which results in the lower aggregate premium. Some contracts will also allow the reinsurer to laser out others in the future and that too is a caution to evaluate. How much risk do you want to accept in the future also? Good luck!

[KIP KRAUS]

KGibson:

Isn't stop-loss coverage an insured product? Why wouldn't that be regulated by the state insurance commission?

[Guest rmg]

I think Kim Gibson was talking about the benefits in the health/welfare plan not being subject to state insurance, not the stop loss. My understanding of stop loss (at least here in Texas) is that it is legally a property/casualty type of policy and not a life/health policy (but I'm not an expert).

I'd like to see a little discussion on Jeanine's question concerning HIPAA. I haven't had anyone lasered out since HIPAA became effective so I haven't really though about it but my guess would be that HIPAA applies to the employee and the stop loss lasering can be allowed because it's a different animal and not discriminating directly against the beneficiary (the ee or the covered dependent). In other words, the ee/covered dep is blind to the stop loss and will receive benefits the same as every other covered person; the er is simply agreeing to a different funding. What do you all thin

[jeanine]

My concern, as always, is that the employer will do something under the radar. This person is costing a lot of money. Certainly it would be to the company's advantage if this person was no longer on the plan.

[KIP KRAUS]

Rmg if I'm not mistaking stop-loss in New York is also viewed as property and casualty coverage. Therefore, it must be subject to different underwriting criteria than group insurance. I have never seen this lasering type of underwriting, but it makes sense from an underwriter's perspective.

Like you, however, it does not appear that this type of singleing out would be discriminatory, because it would be transparent to covered individuals provided they recieve the identical medical coverage as other plan participants.

[Guest KGibson]

RMG, you are correct in the assumption of my reference to state mandate requirements. Also, in agreement with your statement Kip that the reinsurance is an insured product. However, it is insuring the design created by the plan sponsor (the company). That plan sponsors design of a self funded plan is what does not have to meet state welfare plan mandates when designing the beneifts that will or will not be covered at to what limit. I have seen lasering in plans, but not over the past few years because of the issues such as timely claims payment ( which is a growing area of litigation against benefit plans) and the fact that the reinsurers contract which allows lasering can also come back to bite the plan sponsor at renewal if they have had a bad year. Lasering out one individual is one thing, and may be more financially advantagous to the plan in the short term, but what if you have 10 bad claims, and the reinsurer comes back at renewal and lasers all 10 out at $250,000 stop loss point each? I have seen that happen. Of course with that many bad claims, you are in a catch 22 spot, because to change plans with that kind of ongoing experience, will NOT BE CHEAP either. I try to always look at how to minimize the risk my plan is willing to accept. I would discuss with the reinsurer and the broker, what protections of future lasering I have, and if the medical condition of the individual changes by next renewal, how willing they will be to renegotiate, or possibly, if his medical condition will be over a long period and continue to worsen, will they guarantee a maximum laser amount on him for say 2 - 3 years? Additionally, if the condition is disabling, this individual will eventually be off the plan as an active participant, but will have COBRA options of course. But that can also be used to show the limit of exposure when negotiating for long term committment with the reinsurer. If that is the case...

[KIP KRAUS]

Kim:

I have no misconceptions about self-insured plans not being controled by state legislation. I just thought I had missed something when I read your first response saying self-insured plans were exempt, but didn't point out the the stop-loss insurance was not exempt from state law.

The problems you point out with stop-loss coverage can be a problem regardless of lasering and the risk in a self-insured plan is always a crap shoot.

[Guest KGibson]

Kip:

Once reading my original message, I thought I just needed to clarify a little more as you pointed out.

And I couldn't agree more with self funding being a crap shoot! But it certainly can be wonderful if you can keep your crap together so-to-speak! HA HA

[Guest WJC]

As a general thought on lasering, the underwriters are indeed taking into account certain ongoing situations but they are also looking at the risk for the entire group of employees. They will set a premium rate for the renewal stop loss policy with all employees at the same specific level, and can also offer an alternative (lower) premium rate for the group if there are certain employees lasered to a higher deductible. In this situation, they are not discriminating against the employees with the ongoing situation but they do need to realistically reflect the additional risk associated with the ongoing claims.

[Larry M]

When discussing reinsurance with clients, I use the analogy of a line of credit.

That is, the client (employer) has designed a plan which will pay for specified medical expenses incurred by his employees. Over the long run, these claims will be at a certain level.

No matter what the size of the employer, claims in a given period will be higher or lower than the expected.

For self funded plans, the lower than expected periods are easy to fund.

When the claims spike upwards, the client needs a source of extra cash.

We use the reinsurer as the "bank" to lend us the money to pay for the excess claims.

For this loan, the reinsurer charges a fee, which adds to the cost of the basic plan.

In the negotiation of the reinsurance contract, the client decides which level of risks it is willing to take in any period and the level above which it needs to borrow the money to pay claims.

The reinsurance premium is the reinsurer's charge for the expected claims above the risk level plus its fees for providing the loan "on demand".

The addition of reinsurance does not affect the employees' claims.

The addition of reinsurance adds a cost to the employer's cost of maintaining the program - in return for which the emplyer receives the comfort of knowing its cash flow risk is limited.