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. $85,000) in a plan year.
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%. The HM proposal puts the attachment point at $3,948,328 for 294 covered employees and their covered dependents.
The City has also selected an optional feature to the reinsurance policy called Aggregating Specific coverage. This option allows the City to accept an additional amount of claims liability in return for an equivalent amount of premium reduction. Beginning in 2014, the City assumed additional liability of $75,000 of aggregating specific coverage. Under the aggregating specific option, the City still has the same specific deductible of $85,000 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 $85,000 of each claim ($255,000 total) leaving the stop loss carrier to pay the remaining $120,000. With the aggregating specific option, the City still pays the first $85,000 of each claim ($255,000 combined) plus the first $75,000 of the remaining $120,000. This would satisfy the aggregating specific limit, leaving the stop loss carrier to pay the remaining $45,000. After the aggregating specific limit is satisfied one time, the plan is reimbursed for all claims for everyone else who exceeds the $85,000 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 2020, quotes were solicited for stop loss coverage that matched the existing 2019 coverage with a $85,000 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 2019, proposals were requested from 12 stop loss insurance carriers for the 2020 plan year. Seven insurance companies submitted responses to the request for competitive quotes. A spreadsheet summarizing the total cost components of the proposals is attached. (Attachment A)
HM Insurance Company, submitted the most competitive quote with a slight premium decrease (-1.96%) compared to the 2019 rates provided by Blue Re, the current stop-loss coverage provider, and approximately 4.5% below BlueRe’s renewal proposal. By accepting the proposal from HM, the cost of this coverage would slightly less than in the 2019 plan year.
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, recommend accepting the contract with HM Insurance Company for stop loss coverage for calendar year 2020 with an $85,000 specific deductible and the $75,000 aggregating specific provision. Please see attached memo from Lisa Stamm, Sherrill Morgan, regarding Stop Loss Recommendations for additional details. (Attachment B) Note that HM has been the stop loss provider for the City in the past, and staff had good experience with the firm.
A related resolution is scheduled to appear on the Board of Commissioners meeting agenda on November 11, 2019. This item will include recommendations for administrative services, plan design, funding and other changes for the 2020 plan year.
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