Self-Funded Playbook
Helping you advise your clients on decisions related to self-funding and stop-loss.
Whether your clients are already self-funded or are interested becoming self-funded, it's important for you to help them to consider all of their options, so they can make the best decision for their business. This experience will walk you through the key decision points when it comes to self-funding.
To access our full broker-specific self-funded playbook, click here
Funding Arrangements
Claims Administration
Stop-Loss Insurance
Key Decision #1
Key Decision #2
Key Decision #3
Self-funding Checklist
Action Plan
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BROKER GUIDANCE
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Self-funding action plan - help advise your clients
Work with your clients to understand and meet their needs so that you can help them develop a self-funding action plan.
Funding arrangement
Claims administration
Stop-loss insurance
Cost containment
Action plan
Click here to review self-funding information
Evaluate if self-funding makes sense for the particular business
Determine the business’s benefits strategy and financial goals. Understanding their risk tolerance and cash-flow needs will help the employer decide if it should be fully insured, self-funded with stop-loss insurance, or self-funded without stop-loss insurance. Provide counsel to your clients alongside their chosen plan administrator.
Once your client has decided to become self-funded, the next tabs (claims administration, stop-loss insurance, and cost-containment), have elements to consider when creating a self-funded plan.
Finalize medical plan document
Provide guidance alongside their claims administrator, make their plan document follows all applicable laws and describes the benefits the employer is offering to the covered plan members. Confirm with the claims administrator that they can administer the plan document.
Perform an annual plan document review
Review the plan document every year. A variety of factors can necessitate amendments to the plan document.
Select or change the claims administrator
Consider what type of networks, service, data, vendors and programs their business needs. Choose the claims administrator that meets those needs—typically either an administration services only (ASO) plan or a third party-administrator (TPA) plan. Check to see if the selected claims administrator uses claims best practices such as giving high-dollar claims special attention, etc.
Apply data analytics
Provide your employer clients with marketplace and industry benchmarks—this information can provide key insights to help make plan design and coverage choices. Provide additional guidance based on predictive modeling, which can help reduce healthcare risks and costs for the both the covered employee population as a whole and for individual covered employees.
Select stop-loss coverage and deductibles
Perform an annual stop-loss review
Determine how to best adjust deductible levels and coverage selections using the factors listed above. One important consideration should be addressing ongoing high claims. Higher deductibles (sometimes called “lasers”) can be set for particular employees at high risk for higher-cost claims. Some employers are willing to accept the additional risk of a laser at the annual stop-loss renewal. Some employers don’t want to take on more risk at renewal. For those employers, ask the stop-loss carrier about an option that provides no new lasers at renewal with a renewal rate cap so upcoming costs are more predictable.
Leverage resources
Work with the claims administrator and stop-loss carrier to help determine when certain resources will be used. Stop-loss carriers and claims administrators both have resources to help contain costs and support better patient outcomes.
Share cost-containment best practices
The broker, the stop-loss carrier, and the administrator should share what works and look for ways to apply successful strategies more widely.
Follow the plan document
Include clear cost-containment language and ensure that the claims administrator processes claims according to the plan document.
Review the hospital charges
Apply discounts and perform an accuracy review, so the employer pays the correct amount.
Explore wellness programs
Match programs to the particular employee population. Be realistic about savings goals and timeframes, and to understand that the impact of these programs may be difficult to measure. Recent research suggests that wellness programs should focus on fixing the problem of unhealthy behaviors to make an impact on healthcare costs.
Care navigation and health advocacy
Talk to your clients about the value of providing expert medical opinions, fast access, and personal advisor support for their employees. By supporting their employees in the moments that matter, it can result in better health outcomes for the member and cost-savings for the employer.
Steps
Click here to review claims information
Analyze a set of factors such as changes in federal and state laws, current industry coverage trends, the employer’s risk tolerance, a decrease or increase in staffing levels, employee demographics, claims experience, and typical medical costs in its current or new geographic location. Based on that analysis, the employer can decide how to change the stop-loss deductibles, modify the policy basis, or add or remove certain features or services. Investigate options to tailor stop-loss coverage to meet the needs of the particular employer.
Click here to review stop-loss information
Key Decision Point 1: Funding Arrangement
The employer, based on its benefits strategy and financial goals, determines how to fund health benefits for plan members. Employers are trying their best to provide affordable coverage to it’s employees, but the costs of future healthcare is unknown. Especially now, employers want to avoid disrupting their employees, obtain claims and benchmarking data, and have more control over their healthcare spending.
Self-funding vs. Fully Insured
Why self-fund?
Self-funding costs
Self-funding saving
Advantages of self-funding
Federal and state laws
Select a topic to learn more:
Potential savings for the employer’s benefits plan
Administration (TPA or ASO with a health insurer)
Claims adjudication
Costs
Administrative fees
Stop-loss specific (catastrophic claims)
Stop-loss aggregate (ordinary claims)
Claims (employer’s bank account)
Medical
Reserves
Rx, dental, vision
Employer self-funds the benefits plan
Potential profit for the health insurer
Administration (health insurer)
Premium and taxes
Risk and pooling
General expenses
Claims
Reserves (first year)
Insurance company charges a premium to provide a benefits plan
• Perform more in-depth utilization analysis and identify claim trends • Refine its benefits plan design and options • Tailor health management and improvement programs, such as case management, wellness programs, and employee incentives
Self-funding provides increased claims-data access, which allows the employer (or its broker or administrator) to make decisions to improve the health, wellness and productivity of its employees and help the bottom line through its ability to:
There is a lot to think about when deciding what type of funding arrangement will work best. But the primary driver is often cost, and the ability to control it. Fully-insured plans and self-funded plans often have similar claims costs — because the claims themselves don’t change for the employer population — but self-funded plans have less admin fees and taxes. In the fully insured plan, claims costs are baked into the premium which is larger because it is all claims, not just stop-loss claims.
• Lower administration and insurer profit costs (typically 15–20% of plan premium for a fully insured plan) • Lower premium taxes (only excess-loss coverage premium is taxable) • Retained dollars from unspent claims funding
The Self-Insurance Educational Foundation shared the different ways that self-funded can lead to employer savings:
Self-funded employers, more so than fully insured employers, have opportunities to save. Savings can come from lower taxes due to the different taxation laws. Self-funded employers also have the ability to design a health plan so it can produce savings. In addition, self-funded employers can use cost-containment strategies and programs, which may result in lower-than expected claims amounts.
In addition, self-funding provides increased claims-data access, which allows the employer (or its broker or administrator) to make decisions to improve the health, wellness and productivity of its employees and help the bottom line through its ability to:
The cost of healthcare continues to rise every year. The Centers for Medicare and Medicaid services project an increase of 5.5% annually through 2028, when it would be around $6 trillion dollars. These cost drivers include a lack of cost transparency, pharmacy costs skyrocketing, and increased medical costs overall.
Federal laws do not apply
• Certain taxes and fees • Stop-loss requirements
State laws apply
• Some ACA-related taxes and fees • ERISA
Federal laws apply
Some state laws apply, but usually not subject to health insurance requirements
• ACA is just one example
• Health insurance premium taxes • Health insurance requirements
Laws do not apply
Some laws apply
Laws apply
State and federal laws should be taken into consideration when deciding to self-fund.
Self-funded medical plans tend to have lower taxes than fully insured ones. Why? Fewer taxes apply to self-funded plans. In addition, state premium taxes for selffunded plans are assessed against stop-loss insurance premiums instead of health insurance premiums. Stop-loss premiums are typically much less than health insurance premiums, so the self-funded employer gets a comparatively lower tax bill.
A Sun Life survey of 44 brokers determined that cost savings is the primary reason employers consider self-funding. Specifically, according to brokers, employers look for savings through reduced fees, tax savings and control over benefits plan design.
When an employer self-funds, it must determine how much risk it’s willing to take and if its cash flow can accommodate the new funding arrangement, including paying for claims, administration fees and stop-loss coverage.
So, the answer to “how small is too small to self-fund” really depends on the employer in question. By following the above recommendations and working with a knowledgeable broker, the employer—regardless of size—can determine if self-funding makes sense for its particular business.
• Benefits strategy and financial goals • Risk tolerance • Cash-flow needs • Administration of the plan and access to the data • Stop-loss and the appropriate levels
Regardless of employer size, every business needs to consider certain things when deciding to self-fund. When considering self-funding, there are a few key areas to evaluate:
There are clear advantages and responsibilities to consider when deciding whether or not to self-fund. Self-funding isn’t appropriate for every business, but it can be the right decision for many. Typically, an employer will depend on its broker to guide it through the process of funding arrangement evaluation and subsequent decisions. As their broker, you are a great resource to tap – and can advise them on selffunding and stop-loss coverage trends in different industries. You can also recommend ways to manage cash flow and the risk associated with high-cost claims.
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An employer has more flexibility and financial control with self-funding than it does by fully insuring. An employer that self-funds can design the health plan and cost-savings strategy according to its preferences. If an employer fully insures, it is limited to the health plan design options offered by a health insurer.
Employers in a fully-insured arrangement are paying taxes on the entire premium, whereas, self-funded employers pay taxes and fees on a smaller stop-loss premium amount. Although there are still premiums for stop-loss coverage, employers can save if their claims are better than expected.
1. Eight reasons for rising healthcare costs, July 2022. https://www.peoplekeep.com/blog/eight-reasons-for-rising-health-care-costs. 5. Oct 27, Published: and 2022. “2022 Employer Health Benefits Survey - Section 10: Plan Funding.” KFF, 27 Oct. 2022, https://www.kff.org/report-section/ehbs-2022-section-10-plan-funding/. 7. Nov 10, Published: and 2021. “2021 Employer Health Benefits Survey - Section 10: Plan Funding.” KFF, 10 Nov. 2021, https://www.kff.org/report-section/ehbs-2021-section-10-plan-funding/. 9. All information according to the Sun Life 2022 High-cost claims and injectable drug trends report, which covers four years of high-cost claims that Sun Life paid. Producer use only. Not approved for use in New Mexico. Group stop-loss insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York, under Policy Form Series 07-SL. In New York, group stop-loss insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Windsor, CT) under Policy Form Series 07-NYSL REV 7-12. Product offerings may not be available in all states and may vary depending on state laws and regulations. © 2023 Sun Life Assurance Company of Canada, Wellesley Hills, MA 02481. All rights reserved. The Sun Life name and logo are registered trademarks of Sun Life Assurance Company of Canada. Visit us at www.sunlife.com/us. GSLWP-5469-BR-h SLPC 27244 03/23 (exp. 03/25)
Key Decision Point 2: Claims Administration
It's important to have a claims administrator as they play a vital role when considering to self-fund. Selecting a claims administrator determines the provider network or networks available to the employer and its health plan members. In addition, the claims administrator and their approach can have a significant impact on the success of the self-funded strategy and the benefits experience of the health plan members.
Types of Administrator
Sending in claims
Processing claims
Claims best practices
Intro to reference-based pricing
Reference-based pricing support services
Here are the common types of entities that send in claims to the claims administrator for payment: • Hospitals • Outpatient clinics • Physicians’ offices
Administrators see every medical claim. For instance, a claim might come from a routine doctor’s office visit. Over the past few years, the conditions resulting in the most claims were two different types of cancer, and chronic/end stage renal (kidneys) disease.
With a TPA plan, employers receive access to local and regional provider networks (and some may also provide a national network), a personalized service model and customization options for plan design, cost-containment programs, and best-fit vendors. An advantage of the TPA approach is that it supports choosing separate vendors for different services (sometimes called the “unbundled” approach, whereby different partners are selected based on their area of expertise). For example, an employer might select a particular pharmacy benefits manager (PBM) or wellness vendor based on their preferred service model or business goals and seek to integrate those services with their medical claim administration.
With an ASO plan, which is provided by health insurance carriers, the employer is typically offered access to proprietary provider networks (which can frequently offer national reach), a standard service model, and set cost-containment programs. The ASO method is sometimes referred to as a “bundled” approach. ASO plans can work well for employers that are comfortable with the standard set of costcontainment programs and vendor choices. Employers that work with ASO plans report that fewer exchanges make a health insurance carrier feel less risky.
When an employer self-funds, it needs a claims administrator. Typically, it hires another company to administer claims. For most employers, claims administration comes down to two choices:
• —how are they administering claims? What type of planning does auto-adjudication involve? • —are they available to you and aligned for success? • —is on-demand, detailed reporting regularly available and flexible?
First, claims administrators typically send the employer a template medical plan document. Then, the employer, broker and claims administrator work together to create the plan document. The medical plan document governs many areas, such as the benefits offered and how claims are administered.
Contain costs for high-dollar claims
The claims administrator needs to adjudicate claims according to the medical plan document. The employer should ask the prospective administrator to explain how it manages claims costs.
Some claims administrators are also licensed to advise and sell stop-loss insurance to employers. These professionals are referred to as “broker/administrators.”
The amount paid to the healthcare provider (such as a hospital) after discounts were applied
Paid charges
The amount that the charge is reduced by based on negotiations
Negotiated discount
The initial amount that a healthcare provider (such as a hospital) charges
Billed charges
The Current Procedural Terminology (CPT)/Healthcare Common Procedure Coding System (HCPCS) identifies medical procedures and services
Service codes
The International Statistical Classification of Diseases and Related Health Problems (ICD-10) identifies medical conditions
Diagnosis codes
Common claims analysis factors include:
Claims can be processed through a variety of methods. In auto-adjudication, a system provides claims analysis and decisions based on criteria developed from the underlying plan document. If a claim is complex, manual adjudication may also be performed to support case management and the use of additional services such as cost containment.
Develop
3.
Assess
2.
Negotiate
1.
Although it is not for everyone, Reference-based pricing (RBP) is a unique alternative designed to reduce costs by limiting the choice of facilities and networks, which results in charges that are closer to actual physician cost. This may be a smart choice for employers who:
• Are interested in exploring alternative forms of cost-containment • Have an engaged group of employees, willing to actively help control medical costs • Have employees located in areas with access to multiple, competing hospitals
Generally, RBP programs do not rely on contracts to define reimbursement with a provider, like the traditional network approach. Instead, the RBP program relies on a methodology to reimburse based on a fair market price for the service performed. This can create scenarios where members may be balance-billed (or asked to pay the difference), which is addressed as part of the program. The RBP program manager will tell the members how to best handle this situation.
Typically only applies to facilities, such as hospitals.
Physician access still generally requires a traditional network, although some programs will apply RBP to all claims.
Network replacement
The goal of the RBP program
is to pay claims at an amount closer to their actual cost, plus a fair and reasonable margin.
Some RBP programs may confirm reimbursement or negotiate with the provider before services occur, while others may defend reimbursement or negotiate after a claim, if there has been an appeal.
Claim Negotiation
Plain Language
Claim Audit
Member Avocacy
Member Education
Legal Defense
To support RBP services
To let members know what to expect
To replace claims
To support members if balance billed
To support members if provider appeals
Pre-Claim Services
Post-Claim Services
Develop a systematic cost-containment approach toward high-dollar claims. Aspects to consider include understanding the medical plan document language and specifying how to apply it to claim adjudication, determining if the treatments are appropriate and medically necessary, and creating a price comparison protocol.
Assess if there are opportunities for cost containment for the services provided. Look at the providers of the services—they could be through the plan’s in-network preferred provider organization (PPO) or out-of-network (OON) providers. Are vendors available (through the claims administrator or stop-loss carrier) that can provide needed medical or specialty services that support improved patient outcomes at reduced or discounted rates? For example, if the medical condition is the need for a kidney transplant, the claims administrator or the stop-loss carrier might have access to a Centers of Excellence facility.
Negotiate with the OON provider and get a signed release showing that the provider accepts the negotiated charge in full and will not charge the claimant the difference (sometimes referred to as “balance-billing the claimant”). To determine the most appropriate payable charges, ask the administrator, stop-loss carrier or specialized service provider to conduct the negotiation.
Negotiation actions might include: • Performing a medical bill review (pay special attention to billing and coding accuracy) • Performing a diagnosis-related review if the diagnosis is in question • Reviewing the medical plan document to determine if it contains UCR language about treatment costs • Comparing the medical price to both the average wholesale price (which usually only applies to medications and durable medical equipment) and to Medicare Plus pricing •Reviewing opportunities for care outside of a hospital setting to reduce risk of complications and infection and deliver a better care experience
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Administration
Cost-containment tools
Reporting
Key Decision Point 3: Stop-Loss Insurance
How stop-loss works
Determining stop-loss coverage
Common stop-loss contracts
Stop-loss options
Who provides stop-loss?
Selecting a stop-loss carrier
Stop-loss coverage types
Once the employer has decided to self-fund and has selected a claims administrator, what’s next? Remember, self-funding means that the employer is taking on risk because it is responsible for costs that are not always predictable. In simple terms, without protection against high-cost claims risk, the self-funded employer is vulnerable. Self-funded employers that want to cap exposure purchase stop-loss insurance.
Many employers purchase both products, though an employer can decide to purchase Specific stop-loss alone. But how can an employer figure out what products to buy and what coverage level (often referred to as a “deductible level”) makes sense for its business? To determine the stop-loss coverage types and deductible levels that fit best, the employer needs to decide what its risk tolerance is, analyze the health and demographics of its plan members, and develop a general understanding of projected claims costs for its group.
• : Protection from large claims that occur for any one covered individual • : Protection from a situation in which the cost of all claims under the Specific deductible is higher than expected
Stop-loss coverage helps the employer by mitigating a portion of the risk of self-funding. Stop-loss insurance “stops the losses” that can result due to high-cost claims. It does so by providing reimbursement to the self-funded employer for claims above a predetermined amount. Most of the self-funded community purchases stop-loss. There are two main types of stop-loss coverage:
Unknown and uncapped maximum exposure
Pay claims, administrator fees, but no premiums
Capped maximum claims exposure
Pay claims, administrator fees, and stop-loss insurance carrier premiums
Understanding stop-loss captive solutions
Highly effective stop-loss carriers are adept at working well with all the stakeholders (brokers, administrators, cost-containment vendors, pharmacy benefits managers and others) so administration is seamless for employers.
Using the direct carrier approach means that one company administers the self-funded health plan, and a separate company provides the stoploss coverage. Claims are administrated either by a third-party administrator (TPA) or through an ASO plan provided by a health insurer. A separate stop-loss carrier can provide more flexibility to the employer when it comes to stop-loss coverage options. For example, a stoploss carrier can provide one stop-loss policy that covers multiple administrators. In addition, it can leverage its specialized knowledge of how to make stop-loss most effective for the employer. When this type of plan is in place, the employer can choose among the “plug and play” specialty services—such as enhanced cost-containment programs—according to its needs.
This approach means that the company (typically, a health insurer) that administers the self-funded health plan (sometimes referred to as administrative services only or ASO) also provides the stop-loss insurance. The ASO claim administrator adjudicates all claims including first-dollar claims (which are claims that occur before the stop-loss deductible is breached) and claims that are eligible for reimbursement under the stop-loss policy. Using this approach, there is a proprietary network provider (which can frequently offer national reach) and the administration is centralized, but programs and services can be limited to a predetermined set of options.
An employer can get stop-loss from a health insurer or a stop-loss carrier. Some employers choose to get stop-loss coverage from the same company that administers their medical claims. Other companies prefer to work with an independent stop-loss provider.
• A complete census • At least two years of claims history • The current/proposed medical plan document • A list of plan changes in the last two years • The current/proposed claims administrator and network • Broker commission percentage
Once an employer selects potential stop-loss carriers, they will need to provide information to the carriers so they can underwrite the coverage. Hover over this box to learn more!
• Strong financial ratings from independent agencies • Impressive experience in the industry to handle challenges • Ability to reimburse the largest claims fast • Autonomous underwriting decision-making without reliance on a reinsurer’s approval • Leadership based on expertise and client insights • Commitment to the stop-loss industry and to providing educational opportunities • Knowledgeable sales, underwriting and service professionals who all specialize in stop-loss • Seamless reimbursement experience with processes that help ensure claims-payment accuracy • Nurse consultants who can help identify opportunities to improve patient outcomes and lower claims costs • Customized product options to choose from so an employer can get what fits it’s organization • Innovative approaches to new employer needs and legislative requirements • Convenient cash-flow options such as the carrier advancing funds to the employer to pay for claims or arranging to get claims data more quickly to speed up the reimbursement process • Access to cost-containment services and consulting that help support the employer’s self-funding and benefits strategies
To help your clients evaluate stop-loss carrier candidates, look for these key attributes.
“One size definitely does not fit all, and you have to find what makes sense for your organization.” — Head of Benefits, legal industry, 2,000+ employees
Typically, employers provide:
• Policy requirements, the desired Specific and/or Aggregate stop-loss deductible(s), and the policy basis (timeframe of when claims are incurred and paid)
Renewal rate cap
(a higher deductible for a particular plan member) at renewal option
No new lasers
Monthly Aggregate Accommodation option
Mirroring
Claims Experience Refund
An Aggregating Specific deductible
Advance Funding
January 1
December 31
Incurred and paid 12/12: Charges incurred and paid during the policy year
Paid 15/12: Charges incurred up to three months prior to and during the policy, and paid during the policy year
Paid 12/15: Charges incurred during the policy year, and paid during and up to three months after the end of the policy year
Run-in
Run-out
12/12 Policy period
15/12
12/15
Employers need to set the contract period. The stop-loss policy period itself is usually 12 months. The contract period determines which claims are covered under stop-loss. The graphic above shows a few examples. A run-in contract might be offered to add stop-loss coverage for claims incurred before the beginning of stop-loss policy period. A run-out contract extends stop-loss coverage for claims paid after the end of the stop-loss policy period. A carrier might also offer a “paid contract,” which covers claims that are actually paid during a 12-month timeframe. The incurred period, for a paid contract, expands to the beginning of the active policy relationship with the carrier.
Stop-loss provides reimbursements to the employer for eligible claims. The most common type of stop-loss is called “Specific stop-loss.” It provides protection for the self-insured employer from large claims that occur for any one covered individual. Here’s how it works:
(or “Plan”) purchases stop-loss insurance from a carrier
pays all of the claims of members covered by the health plan
sends the employer reimbursement dollars for claims costs above a pre-determined amount (referred to as the individual or Specifi stop-loss deductible).
For example, if the stop-loss deductible is $75,000 and the claim is $1 million of eligible expenses, the employer pays the $1 million claim. Then, the stop-loss carrier sends the employer a $925,000 reimbursement.
Employers can choose from a variety of stop-loss contracts to meet their needs.
Stop-loss carrier risk
Reinsurance Aggregate Corridor
Captive member's expected claims in the Captive Risk Layer
25% of expected claims
Reinsurance Aggregate limit
A stop-loss captive is an insurance entity formed and managed by like-minded employers looking to increase control of their employee health benefit programs to reduce overall cost. Specifically, group stop-loss captives allow small employers (25-500 lives) to gain negotiating power of a larger company by sharing a layer of risk. As with traditional stop-loss, the shared layer of risk in a stop-loss captive is capped by an Excess Limit and a Reinsurance Aggregate.
Owned by another entity
Protected or Rental Cell
Stop-loss captives
Owned by members
Group
The protected or rental cell captive may appeal to small employers that want the benefits of participating in a captive arrangement without the responsibility of ownership, governance or management. However, their ability to select service providers for their program (in other words, stop-loss carrier, broker, TPA, etc.) may be limited.
Stop-loss captives generally have two structures: group and protected or rental cell captives.
Within the group captive category, two types of captives exist: heterogeneous and homogeneous. With the heterogeneous category, employers from many different industries come together to form a collective captive. Generally, this type of captive acquires more participants and can quickly achieve an appropriate spread of risk. In contrast, in a homogeneous group captive, employers from the same or similar industries come together to form a captive arrangement. In this case, employer membership can be smaller; however, their underlying risks and underwriting profiles can be quite similar.
A group captive is owned by its member participants who insure their risk through the captive arrangement.
A protected or rental cell captive is owned by parties unrelated to the member participants who insure their risk through the captive arrangement.
With a group captive, participants own the management of the program and have more flexibility in selecting service providers.
From a broader perspective, it can be helpful for an employer to understand how it compares to groups that are similar in terms of industry and size.
Using the employer’s census data, it is possible to get a sense of how the demographics of the group could affect its stop-loss risk. Factors such as gender and age contribute to the group’s overall risk profile and the likelihood of experiencing high-cost claims. Assessment of potential risk, along with other criteria such as stop-loss deductible level and contract type, can affect the cost of stop-loss coverage.
No. It’s a good idea to analyze a set of factors every year, such as changes in risk tolerance, current industry coverage trends, a decrease or increase in staffing levels, employee demographics, claims experience, and typical medical costs in its geographic location. Based on that analysis, the employer can decide how to change the stop-loss deductibles. In fact, picking different deductibles year over year is common and can reduce stop-loss premium increases.
Based on an analysis of a variety of factors, the employer selects the deductible levels for stop-loss coverage. Those factors can include risk tolerance, industry, size, employee demographics, claims experience and typical medical costs in the employer’s geographic location.
As the broker, you or the employer should ask the stop-loss provider for benchmarks on stop-loss coverages and deductibles and for specific information about those benchmarks for employers in the same industry. This knowledge can aid both of you when making coverage and deductible decisions.
Deductible trends vary based on case size and industry. As you can see in the charts below, deductibles range from $49,000 or below to over $500,000. As case size increases, so does the likelihood that a higher deductible level will be selected.
On behalf of your employer client, you should explore these stop-loss features with the stop-loss carrier:
To increase the strength of coverage, it’s a good idea for employers to consider available options.
Claims Experience Refund, which returns a portion of stop-loss premium when claims run lower than expected
An Aggregating Specific deductible, which lowers stop-loss premiums in exchange for the employer retaining more risk
Advance Funding, which improves cash flow by allowing the employer to receive funds before it has to pay for eligible claims
Monthly Aggregate Accommodation option, which provides for earlier reimbursement when non-catastrophic first-dollar claims exceed projected monthly levels
Mirroring, which aligns the medical plan document with the stop-loss policy to help guard against coverage gaps
Renewal rate cap, which can help create more predictable renewals and support longer-term budget planning
No new lasers (a higher deductible for a particular plan member) at renewal option, which can make it easier for employers to manage potential high-cost, high-risk claims
Carriers may provide additional products and services that can improve cash flow, manage costs and better align the stop-loss coverage with the underlying medical plan document.
Small employers, typically with 50–250 employees but possibly up to 500, are potentially a good fit for a captive solution. Choosing a captive solution can also be an effective way for a fully insured employer to transition to self-funding.
On the other hand, when employee claims are at or below the expected level, the employer members share the profit that would normally have gone back to the insurance carrier. This is one of the key drivers and benefits of self-funding.
Employers select a stop-loss captive to pool and share their risk and to reduce their claims volatility, which can ease the transition to self-funding. For instance, when an unexpected high-cost claim occurs, a group captive can absorb the shock and its impact is shared among the pool of employers. More specifically, a stop-loss captive can choose to absorb some of the risks, which may be lasered by traditional medical stop-loss policies, such as certain individuals with large, ongoing medical conditions.
Hover over each type to learn more!
Check our digital experience here to learn more about how you can leverage data to create a successful stop-loss plan!
Want to estimate an employer's stop-loss claims based on employee size and deductible level? Click here!
Specific
Aggregate