Medical stop-loss coverage has become increasingly popular with employers who self-fund employee health insurance. With so many providers in the market today, shopping for the lowest premium may not be the best approach–substantially lower premiums may be indicative of serious contract or service weaknesses. When searching for a stop-loss carrier, look closely at the carrier and the contract to ensure that your company is protected in the event of a catastrophic claim.
The Carrier
When you look beyond premium, stop-loss carriers vary by financial strength, service, pricing and underwriting philosophy.
The financial strength of the carrier is a major concern. Stop-loss claims can be huge, sometimes reaching into the hundreds of thousands–even millions–of dollars. You should be confident that your carrier has the resources to pay a catastrophic claim. Discuss prospective carriers with your broker and research independent ratings by Moody's, A.M. Best, and Standard & Poor's.
Going beyond premium, consider what services are included in the quote. Features such as PPO discounts and rate lock-ins can be used to compare carriers. Large case management is another way carriers give value back to employers. With large case management, the stop-loss carrier provides employers with resources to manage catastrophic events. These may be opportunities to lower costs on specialty claims, such as cancer, premature births, high-risk pregnancies, and organ transplants. The carrier may have established relationships with networks and managed care services, providing negotiated discounted rates. Besides passing these discounted rates on to you, these relationships also give you access to additional cost-controlling resources.
The underwriting philosophy and risk retention are also important distinguishers. Some carriers are able to retain nearly all of their stop-loss risk. This means that they are able define their underwriting policies and make independent claims decisions. Carriers that are unable to retain most of their risk may buy high levels of reinsurance through another carrier, meaning they will insure themselves for pay outs over a certain amount in the event they need to pay a very large claim or many claims at once. Some carriers retain as little as 10% of their own risk.
High levels of reinsurance can also adversely affect your claims. Claim payments may be subject to the reinsurer's review, which may result in long delays of claim determination and payment.
These characteristics are a good place to start when deciding on a stop-loss carrier. Once you've narrowed down your choices, it's time to look at their contracts.
The Contract
The fine print in stop-loss contracts can have a huge impact on your business whether you have 100 employees or 10,000. The two main contract pitfalls are lasering practices and contract limitations.
oLasering is the practice of excluding an employee who is expected to incur high medical costs, or applying a higher deductible to that individual. Since expected claims on these known claimants could easily exceed the stop-loss premium, lasering these individuals when you buy a new policy is a common practice. What to look for: Lasering when your contract renews. Be aware of the stop-loss carrier's lasering-at-renewal practices before choosing a carrier.
