Stop loss insurance or “reinsurance” is catastrophic insurance that is purchased in conjunction with a partially self-insured medical plan. This coverage is designed to limit the City’s maximum liability for medical claims paid by our partially self-insured plan. It includes two major components, with the first being the most important protection:
Specific Stop Loss Coverage – This coverage limits the City’s potential liability for a single member’s catastrophic claims throughout the plan year. Specific stop loss insurance covers all costs of an individual’s claims above a predetermined dollar amount (i.e. $70,000-$75,000).
Aggregate Stop Loss Coverage – Similar to the specific stop loss coverage for individual claims, the aggregate stop loss is an insurance policy that caps the City’s total liability for all claims in the entire plan year at an agreed upon dollar amount called the “attachment point.” Once total claims for the entire plan reach this attachment point, the aggregate stop loss insurance begins paying all additional claims costs for the entire plan. The attachment point is determined by the stop loss carrier’s underwriters and is usually based on the plan’s expected claims amount for the year plus a “risk corridor” or factor, for example 20-25%.
Aggregating Specific Coverage – Beginning in 2013, the City also selected an optional feature to the reinsurance policy called "aggregating specific" coverage. This option allows the City to take on an additional amount of claims liability in return for an equivalent amount of premium reduction. In 2014, the City assumed additional liability of $75,000 of aggregating specific coverage. Under the current aggregating specific option, the City still has the same specific deductible of $70,000 for every member of the plan. However, the City is not reimbursed when someone goes over the specific deductible until some combination of members (it could be one person, or three, or ten) go over their specific deductibles by a total of $75,000.
For example, with the aggregating specific feature, if three individuals each had specific claims of $100,000 ($300,000 total), the City would pay the first $70,000 of each claim ($210,000 total) leaving the stop loss carrier to pay the remaining $90,000. With the aggregating specific option, the City still pays the first $70,000 of each claim ($210,000 combined) plus the first $75,000 of the remaining $90,000. This would satisfy the aggregating specific limit, leaving the stop loss carrier to pay the remaining $15,000. After the aggregating specific limit is satisfied one time, the plan is reimbursed for all claims for everyone else who exceeds the $70,000 specific deductible. Because the City is essentially given an equivalent amount of guaranteed premium reduction in exchange for additional potential liability, the “worst-case” scenario for the City is that it will pay out no more than it would have without the aggregating specific option. The “best-case” scenario would be that the City saves $75,000 in premium.
Annually, the City requests competitive proposals for stop loss insurance to ensure we continue to receive the most competitive rates available for this important coverage. In soliciting quotes for stop loss coverage for 2018, the City sought quotes for coverage that matched the existing 2017 coverage of $70,000 specific deductible and the $75,000 “aggregating specific” option. In addition, we requested that proposals include two features that are considered very important to the City in controlling long-term costs to the plan. Specifically, preferred proposals would include a renewal year (next year) rate cap or maximum, and an agreement that no plan member can be excluded from stop loss coverage or assigned a higher stop loss maximum based on high claims experience in the next plan renewal year. (This provision is referred to as “no new lasers.”)
Proposals were requested in September 2017 for the 2018 plan year. Only three insurance companies submitted responses to the City’s request for competitive quotes. A spreadsheet summarizing the total cost components of the proposals is attached. Blue Re, the City’s current provider of stop loss coverage, submitted the lowest quote with a 9.77% cost increase. By accepting the quote from Blue Re, the cost of this coverage would increase approximately $36,200 for the 2018 plan year. The other two proposers were not considered competitive.
Blue Re also submitted a proposal with a $75,000 specific deductible at a cost increase of 2.64%, or $9,800 more than the cost of our current policy with a $70,000 specific deductible. Accepting this proposal would result in $26,400 in premium savings compared to the renewal proposal with a $70,000 specific deductible.
During the past three years, the plan has experienced five claims in each year that have exceeded $70,000. Assuming we have the same number of large claims (exceeding $70,000) in 2018, the premium savings would offset the increase in liability. However, for each additional large claim over $70,000 the City would be responsible for an additional $5,000 on each.
Based on an analysis of all proposals submitted by the vendors, as well as the service capabilities of the companies, City staff and the City’s insurance consultant, Sherrill Morgan, recommend accepting the contract with Blue Re for stop loss coverage for calendar year 2018 with a $75,000 specific deductible and the $75,000 aggregating specific provision.
Stop Loss Cost Summary Comparison
| |
2017 Blue Re
Current Plan
Adjusted for headcount |
2018 BlueRe Proposed with $75,000
Spec. Deduct. (Renewal Quote) |
Difference |
| Annual Specific Stop Loss Premium |
$354,400 |
$364,200 |
$9,800 |
| Annual Aggregate Stop Loss Premium |
$ 15,800 |
$ 15,800 |
$ 0.00 |
| Total |
$369,400 |
$379,200 |
$9,800 |
A related resolution is scheduled to appear on the Board of Commissioner’s meeting agenda on November 13, 2017. This item will include recommendations for administrative services, plan design, funding and other changes for the 2018 plan year.
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