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. $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%.
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 $75,000 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, without the aggregating specific feature, if three individuals each had specific claims of $125,000 ($375,000 total), the City would pay the first $75,000 of each claim ($225,000 total) leaving the stop loss carrier to pay the remaining $150,000. With the aggregating specific option, the City still pays the first $75,000 of each claim ($225,000 combined) plus the first $75,000 of the remaining $150,000. This would satisfy the aggregating specific limit, leaving the stop loss carrier to pay the remaining $75,000. After the aggregating specific limit is satisfied one time, the plan is reimbursed for all claims for everyone else who exceeds the $75,000 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’s insurance consultants, Sherrill Morgan requests competitive proposals for stop loss insurance to ensure we continue to receive the most competitive rates available for this important coverage.
For 2019, quotes were solicited for stop loss coverage that matched the existing 2018 coverage with a $75,000 specific deductible and the $75,000 “aggregating specific” option.
In addition, proposals were requested that include two features that are considered very important to the City in controlling long-term plan costs. Specifically, preferred proposals would include a rate cap or maximum at renewal year (next year) and an agreement that no member could be excluded from stop loss coverage or assigned a higher stop loss maximum based on high claims experience during the coming year. (This provision is referred to as “no new lasers.”)
In September 2018, proposals were requested from twelve stop loss insurance carriers for the 2019 plan year. Five insurance companies submitted responses to the request for competitive quotes. A spreadsheet summarizing the total cost components of the proposals is attached. (Attachment A)
Blue Re, the City’s current provider of stop loss coverage submitted the most competitive quote with a 6.75% cost increase over 2018 rates. By accepting the proposal from Blue Re, the cost of this coverage would increase approximately $28,000 for the 2019 plan year. Please note that the proposals from IOA Re had a slightly lower premium but did not include the rate cap and no laser provisions required to limit the City’s future plan costs.
Blue Re also submitted a proposal with an $85,000 specific deductible. Accepting this proposal would result in $54,000 in premium savings compared to the renewal proposal with a $75,000 specific deductible. It also represents a cost decrease of 6.7% or $26,672 less than the cost of our current policy with a $75,000 specific deductible. (Attachment B)
During the past four years, the plan has experienced an average of four claims in each year that have exceeded the proposed $85,000 and only one in 2018. Assuming we have the five or fewer large claims (exceeding $85,000) in 2019 the premium savings would offset the increase in liability. If we have less than five large claims exceeding $85,000 the premium savings would result in an overall reduction in plan costs by assuming the additional risk. However, if we have more than five large claims over $85,000 the City would be responsible for an additional $10,000 on each. Please see the following analysis for further details.
Based on
|
Current Specific
|
Proposed Specific
|
Premium Savings
|
# of Specific Hits to Erode Savings
|
# of Claimants Exceeding Proposed Specific
|
Additional Claims Under Proposed Specific
|
Savings/ (Additional Cost)
|
| 2015 |
$75,000 |
$85,000 |
$54,293 |
5.43 |
6 |
$60,000 |
($5,707)
|
| 2016 |
$75,000 |
$85,000 |
$54,293 |
5.43 |
4 |
$42,413 |
$11,880
|
| 2017 |
$75,000 |
$85,000 |
$54,293 |
5.43 |
5 |
$68,908 |
($14,615)
|
| 2018 |
$75,000 |
$85,000 |
$54,293 |
5.43 |
1 |
$19,183 |
$35,110
|
| TOTAL |
|
|
|
|
|
|
$26,668
|
Based on an analysis of all proposals submitted by stop loss insurance providers, as well as the service capabilities of the companies, City staff and the City’s insurance consultant, Sherrill Morgan recommends accepting the contract with Blue Re for stop loss coverage for calendar year 2019. Furthermore, given the strong financial reserves in the City's Insurance Fund and prior experience reflected above, it is recommended to accept an increase in the specific deductible amount from $75,000 to $85,000 while maintaining the $75,000 aggregating specific provision. Please see attached memo from Lisa Stamm, Sherrill Morgan, regarding Stop Loss Recommendations for additional details. (Attachment C)
Stop Loss Cost Summary Comparison
| |
2018 Blue Re Current Plan
(Adjusted for headcount) |
2019 Blue Re Proposed
w/$85,000 Spec. Deduct. (Renewal Quote) |
Difference |
Annual Specific Stop
Loss Premium |
$381,383 |
$354,711 |
$(26,672) |
| Annual Aggregate Stop Loss Premium |
$16,665 |
$16,665 |
$0.00 |
| Total |
$398,048 |
$371,376 |
$(26,672) |
A related resolution is scheduled to appear on the Board of Commissioners meeting agenda on November 12, 2018. This item will include recommendations for administrative services, plan design, funding and other changes for the 2019 plan year.
|