An organization that is willing to proactively manage its health care costs through benefit plan redesign and innovative delivery of care will seek to capture the cost savings generated by these actions. An experience-rated plan uses recent claims and utilization data of a particular organization to establish the appropriate insurance rates for a future time period. If an organization has had a history of favorable claims experience, the experience-rated insurance product may offer substantial cost advantages over an underwriting approach that uses aggregate community claims experience to establish insurance rates.
An organization of sufficient size may finance its health care benefits using a cost-plus or self-insured approach. Under such a scenario, the organization will pay for the actual claims of its group, along with an administrative charge to an insurer or third-party administrator who handles claims processing. Such an agreement is often called an administrative services only (ASO) agreement. Under this type of arrangement, it is important to understand provider reimbursement methods. For instance, are hospital daily room costs based on actual charges or a discounted amount below charges? Will the hospital be paid for each day a patient is hospitalized, or will the hospital be paid for a fixed number of days commensurate with the expected length of stay usually associated with the medical condition and its course of treatment? This latter approach would give the hospital an incentive to ensure that patient lengths of stay are in line with practice norms.
If an organization utilizes a cost-plus or self-insured method of financing, it may choose to limit its potential aggregate medical claims exposure by purchasing insurance that would make payment if claims exceeded a certain predetermined amount for the entire group. This insurance coverage for capping the total claims experience of the group is known as aggregate stop loss. A firm also might limit its liability using specific stop loss. Specific stop loss sets a limit on the amount that a plan sponsor will pay for an individual case. If a catastrophic medical case occurs, the employer will only be responsible for paying covered medical costs on that individual case up to the stop-loss amount.
Because the insurer is assuming risk for excess claims, the contractual document will clearly define when the insurer assumes the risk. It is extremely important when contracting for stop-loss protection to carefully analyze terms and conditions to ensure that the intentions for protecting against loss are matched by the insurer's policy. For instance, the period for claims coverage could be specified either on the basis of when a claim is incurred or when a claim is paid. It is also important to ensure that definitions for coverable expenses in the employer's health plan match coverages in the stop-loss agreement. Medical plans and stop-loss coverage typically exclude medical care that is deemed experimental in nature. Do both documents have the same definition of experimental medical care? Other issues to examine would be whether specific subscribers undergoing treatment are excluded from the stop-loss coverage and how the run-out of claims payments going beyond the stop-loss coverage period are handled.
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