Medical Stop-Loss 101
M
h 2013
What Is a Self-Funded Medical Plan?
› A self-funded (or self-insured) medical plan is one in which the ( ) p employer assumes the financial risk for providing healthcare benefits to its employees
› This provides an important alternative to purchasing
traditional medical insurance products (fully-insured products)
› Self-funded employers pay for each claim as it is incurred, instead of paying a fixed premium to an insurance carrier
Why Employers Choose to Self-Fund
y
p y
160 million people get their coverage through the employer-based healthcare system including 75 million who are covered by self-funded medical plans(1)
› Customization – employer can customize the plan to meet the specific healthcare needs of its workforce
system, including 75 million who are covered by self-funded medical plans(1)
› Participation – employer (not the insurance company) benefits when claims experience is at or better than expected levels
› Consistent Regulation – self-insured health plans are regulated under federal law
› Lower Taxes – employer is not subject to state health insurance premium taxes
Challenges Facing Self-Funded Employers
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g
p y
• Administration of the plan
• Administration of the plan
Challenge
Solution
• Third Party Administrators
• Third Party Administrators p
• Access to benefit networks (hospitals, physicians,
p
• Access to benefit networks (hospitals, physicians,
y (TPAs)
• Insurers (providers of fully insured medical products)
y (TPAs)
• Insurers (providers of fully insured medical products) ( osp ta s, p ys c a s,
prescription drugs) ( osp ta s, p ys c a s,
prescription drugs) insured medical products) with Administrative Services Only contracts (ASOs)
insured medical products) with Administrative Services Only contracts (ASOs)
• Uncertain amount and timing of claims
• Uncertain amount and timing
Medical Stop-Loss Insurance
Limits Claims Risk for Self-Funded Employers
Limits Claims Risk for Self Funded Employers
› All but the very largest of self-funded employers have some level y g p y of risk that they are not comfortable keeping
› Employee benefit brokers bring self-funded employers to insurance p y g p y carriers who offer stop-loss coverage
› Two types of coverage work together to protect the self-funded yp g g p employer:
› Specific Stop-Loss protects against the severity of claimsp p p g y
› Aggregate Stop-Loss protects against the frequency of claims
“Specific” Stop-Loss Insurance
p
p
› Most stop-loss insurance is Specific stop-loss
› Covers a self-funded medical plan for the claims of one individual
› Employer can choose its deductible; the self-funded medical plan pays for
claims belo that ded ctible for each indi id al
claims below that deductible for each individual
› The specific stop-loss deductible payable by the employer typically ranges
from $25,000 to $500,000
› Specific stop-loss is more expensive than Aggregate stop-loss
› For an employer purchasing both coverages Specific stop-loss
“Aggregate” Stop-Loss Insurance
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g
p
› For smaller employer groups, Specific stop-loss may not provide enough protection
› Aggregate stop-loss provides coverage for the employer group’s total claims (minus the claims that are already covered by Specific total claims (minus the claims that are already covered by Specific stop-loss)
› The Aggregate deductible is set by the insurance company
› The insurance company’s underwriters determine the employer group’s Expected Paid Claims (EPC), then the deductible is
typically set at 125% of EPC typically set at 125% of EPC
› The 25% is called the margin; this margin mitigates the cost of Aggregate stop-loss insurance
Concept of Leveraged Medical Cost Inflation
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g
› When medical costs rise, the stop-loss provider’s costs usually go
b hi h t
up by a higher percentage
› Example (assuming $50,000 deductible for both years):
Impact of Federal Healthcare Reform
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› On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law:
Brings substantial change to insurance coverage for medical costs
› Brings substantial change to insurance coverage for medical costs
› Many changes apply primarily to fully insured group health plans, but some provisions apply to self-funding
› Many provisions of PPACA need to be clarified and will require follow-up legislation
S ifi ll PPACA
› Specifically, PPACA:
› Affects the market for major medical and mini-med plans
› Mandates elimination of certain limits and exclusions
› Establishes new payout standards with Medical Loss Ratio minimums
› Studies find that the majority of employers (74%1) intend to continue to offer employee
healthcare plans, despite concerns that costs will rise as a result of healthcare reform
More employers to Elimination of li it ti Increasing costs of major medical insurance More employers to self-fund their plans
and manage their risks with stop-loss
insurance coverage limitations
Ongoing medical cost inflation
1 Towers Watson survey, May 2010
Symetra’s Strengths in Medical Stop-Loss
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g
p
› We manage to the bottom line – not the top line
› Symetra was an early entrant in the 1970s and we have been
consistent in our focus for over three decades, resulting in a solid record of profitability
record of profitability
› Sales incentives are heavily leveraged on business profitability
› We have built solid relationships and a strong reputation with benefits brokers and employer-customers
› We offer a clean contract design with minimal coverage exclusions
› Our claims service is considered to be “best in class”
Excellent Track Record of Profitability
y
70%
Benefits Loss Ratio
Average: 62.7%
65% 70%
Long-term target range: 63% - 65%
