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 the 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 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.
2020 Plan Year Update
In 2020, the City has experienced a large number of high dollar claims. Through September, five members have exceeded the $85,000 specific deductible. The highest has medical claims in excess of $270,000, another has claims over $140,000, another over $110,000 and two more averaging $100,000. In addition, there are five other members who have already exceeded 50% of the $85,000 specific deductible. While this is an unusually high number of large claims for our group in a single year, it is expected to occur periodically. Based on the terms of our current stop loss policy, to date, the City has received over $224,000 in reimbursements from the stop-loss carrier. As noted below, this has an impact on renewal pricing.
2021 Stop Loss Renewal
Annually, the City’s insurance consultants, Sherrill Morgan Associates requests competitive proposals for stop loss insurance to ensure we continue to receive the most competitive rates available for this important coverage.
In September, quotes were solicited for stop loss coverage for 2021 that matched the existing 2020 coverage with an $85,000 specific deductible and the $75,000 “aggregating specific” option. In addition, proposals were requested that include two features that are considered extremely important in controlling long-term plan costs. Specifically, preferred proposals would include a rate cap or maximum increase at the 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 2020, proposals were requested from ten (10) stop loss insurance carriers for the 2021 plan year. Only two insurance companies submitted responses to the request for competitive quotes. This level of response is expected when a group has experienced a large number of high dollar claims in the previous year.
HM Insurance Company submitted a renewal quote which includes a 44.3% increase in the premium for specific coverage. It also includes a rate guarantee of no more that 50% at renewal (2022) and the important “no new laser” feature. They also offered several other options with higher levels of specific and aggregating specific deductibles.
Blue Re submitted a quote which is 26% higher than the 2020 premium charged by HM. However, this quote also includes two lasers: one at $180,000 and another at $125,000. Both of these claimants are expected to continue to be covered on our plan and have large claims again in 2021. Staff believes that the savings in premiums of accepting this quote would be exceeded by assuming the additional risks on these two members.
A spreadsheet summarizing the total cost components of the proposals is attached. (Attachment A)
Based on an analysis of the proposals submitted by HM and BlueRe for stop loss insurance, 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 2021 with an $85,000 specific deductible and the $75,000 aggregating specific provision. Please see attached memo from Lisa Stamm, Sherrill Morgan Associates, regarding Stop Loss Recommendations for additional details. (Attachment B)
A related resolution is scheduled to appear on the Board of Commissioners meeting agenda on November 9, 2020. This item will include recommendations for administrative services, plan design and funding for the 2021 plan year.
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