A guide to stop-loss insurance - includes related article

Business & Health, May, 1990 by Joyce Frieden

Yet reliable census information is needed by stop-loss insurers to figure out premiums and liability limits, he continues. If an employer with $3 million in annual claims applies for stop-loss insurance and says he has 1,000 employees, the per-employee rates and other factors would be figured differently than for a company with 920 employees. "If the employer [who said he had 1,000 workers] really has 920, our calculations are 8 percent off. Providing good quality census information is as important as good claims data."

What to avoid

There are several things to keep a wary eye out for when selecting a stop-loss carrier, experts note:

* Compare the stop-loss policy with your health coverage. Make sure that the stop-loss policy coordinates with the health plan's benefits. "For instance, what if the stop-loss policy excluded coverage for motorcycle accidents, while the employer's health plan covered them? The employer could be liable for a claim that is not reimbursable," says McErlane of National Benefit Resources.

* Beware of termination provisions. Employers who find that their high numbers of catastrophic cases are making self-insurance a poor deal may want to consider returning to regular insurance. If you are in that boat, make sure you know what happens if you terminate your policy before the end of the policy period.

A good way to check out termination provisions beforehand is to demand a proposal directly from the stop-loss insurer, even if the stop-loss firm was recommended by your TPA, McErlane says. "Demand a proposal from the carrier which clearly communicates the terms of the policy you are considering."

Also, what happens when a claim is lost by the employer and not discovered until many months later, when the firm has a new stop-loss carrier? Make sure the new carrier covers such "surprise" claims--many such policies are available.

Risk-shifting

Stop-loss insurers, like everyone else, are trying to figure out what to do about high-cost patients. "Everybody's running away from risk these days," says Fred Hunt, Jr., president, Society of Professional Benefit Administrators, Washington. He cites an example from his group's recent convention, whose attendees included both stop-loss insurers and TPAs.

"We were talking about real life situations--for instance, a plan has been with a stop-loss carrier for years. Suddenly an employee has a catastrophic condition. The stop-loss carrier says, `We'll cover everybody but him.' Finally, [during the discussion] one stop-loss executive says, `We're not in the risk business, you know.'"

This remark startled some of the other participants, who assumed that carriers were in business to insure risks, Hunt says.

In defense of stop-loss insurers, Hunt notes that "people probably would dump risk on them" if they had the opportunity.

Comeau of stop-loss carrier Guarantee Mutual contends that carriers aren't running away from risk, "On the contrary," he says. "We're accepting more risk now than we have in the past. What we're being more cautious on is not insuring a `burning barn' [someone who is certain to incur high bills]. We won't insure a company for a $100,000 deductible when we know one employee is already in the hospital and will be running up $500,000 in claims. If [a company has] such claims out there, it's not good to self-insure."