Eligibility – Best Practices for Health Insurers

Healthcare reform will continue to require more responsibility from employers – especially small employers – which will, in turn, require more oversight by insurers. If employer groups are not properly enrolling, verifying eligibility, and reporting members, the health plan could find itself at risk with its reinsurer. The best way to avoid potential conflicts is to make sure your master contract is clear – and then to enforce it. In the midst of this constantly evolving marketplace, observing best practices becomes more important than ever. Health plans can encourage compliance by following these simple strategies:

  • Know the employer’s eligibility requirements in regard to initial eligibility waiting period, eligible classes of employees, and the point at which an employee or dependent would no longer be eligible for coverage. Evaluate whether the Summary Plan Description clearly represents the employer’s eligibility rules and practices.
  • Establish processes to verify the eligibility status of new enrollees with the employer group.
  • Understand the processes in place at the employer group to identify any potential issues with obtaining current and updated eligibility data.
  • Create strong plan language with regard to maintaining eligibility.
  • Know what circumstance would cause an employee’s job-based coverage to end and COBRA to be an option to continue coverage with that employer group. Monitor those situations. If an employee elects to continue the group coverage via COBRA, establish a process for surveying COBRA continuees on a regular basis to ensure they continue to meet the COBRA rules for coverage. (Once an employee is no longer eligible for their job-based coverage, s/he has the option of signing up for COBRA or to enroll in other coverage, such as a marketplace plan.)
  • Perform a yearly review to ensure covered dependents are still eligible and/or that there isn’t other coverage that could be primary. (Yearly audits are imperative due to a clause in the Affordable Care Act that states plans cannot retroactively terminate ineligible enrollees unless an intentional act of fraud occurred. An audit of dependents would present opportunity to clearly define what is considered an act of fraud as well as the eligibility requirements.)
  • Identify triggers in claim activity and obtain leave of absence documentation from the Employer group. If the employee is on unpaid leave, typically s/he would not be eligible for continued coverage until they return to an active at work status. (An exception to this would be the Family Medical Leave Act. This is a federal law in which the employee has 12 weeks of protected unpaid leave. If the employer is covered by this law, the employee’s health benefits would not be affected and they would be protected from job loss during this period. Therefore, obtain this information from the employer and document when the FMLA period begins and ends.)

It is important to regularly review current processes and enforce consistent eligibility practices for the plan of benefits. A health plan could be impacted by eligibility exceptions and/or failure to monitor. Because this would indicate that the same rules would not be applied to all plan participants, either condition could be viewed as discrimination, thus affecting the plan’s ability to enforce the eligibility rules across all members.

Written by Claims Manager Kira Sturgis.

Premium check-up

The last thing any of us wants to hear is, “We’re going to be audited!” We all face scrutiny in one fashion or another—whether it’s CPAs examining our financial statements, the NCQA reviewing the quality of care provided to covered members, or maybe even the IRS checking our tax returns. On a different scale, Summit Re began a review process in 2006 to test the premium paid on its reinsurance and stop loss contracts. Typically, our clients submit premiums on a monthly basis using remittance statements we provide at the start of the agreement year. You simply fill in the number of members at the beginning of the month, multiply that by the applicable premium rates, and send payment for the result. And when it’s received by our accounting department, we review the statement for accuracy—to verify that the correct rates were used and to determine if the census fluctuated significantly from prior month—before forwarding it to the reinsurer. The same process is followed for both HMO reinsurance and stop loss premium.

But up until now, we’ve not tested the underlying data, the membership numbers used to calculate premium. Our reinsurers, in audits of our own operations, thought that such reviews make good business practice, and we agreed. While we trust our clients to submit the appropriate premium agreed upon in the contract, it still makes sense to verify it once in a while.

Now, we won’t visit every client, nor will we come calling every year. Rather, we’ll select a few each year for review and travel to your offices to examine the source documentation. While it’s tempting to schedule clients located in the south for review during February (after all, we are in Indiana), we’ll likely perform the reviews in the summer after the busy winter and spring activity have subsided. And we’ll promise that we’ll be as efficient as possible. Generally, all we need is a couple of days to complete our work.

So, there’s no reason to panic if you get a call saying that we’d like to come and verify your premium numbers…you can save that for when the IRS letter arrives!

Disclosure and insurability

Disclosure is the process of revealing information. To bind reinsurance coverage, you must reveal claimant data that may not have been available at the time of underwriting. This disclosure is important for identifying chronic situations that represent known risks and is necessary because of the inherent delay between underwriting the risks and binding the coverage. Disclosure is intended to be a quick review of the latest claim activity at the time that a binder for coverage is signed.

Why is disclosure important?

When preparing a quote, the reinsurer performs a careful analysis of claim costs and trends, including an analysis of the current year's activity. A critical assumption is the degree to which this data can be considered complete. Disclosure helps the reinsurer solidify the accuracy of this assumption.

The disclosure also identifies claimants that may be categorized as chronic and, therefore, highly predictable in both the usage and the cost of services. Depending upon the level of predictable costs, certain members may become uninsurable.

Further, the reinsurer may be able to immediately employ a managed care program to assist in the management of these new claims. This, of course, would potentially benefit both you and the reinsurer.

An accurate disclosure is important to you to protect against possible denial of a claim. The disclosure statement is part of the signed binder. Therefore, without full disclosure, the reinsurer has the right to exclude serious losses that were known by the plan, but not disclosed. This may be rare, but the reinsurer does this to protect against the situation where a party knowingly withholds serious losses.

What to disclose?

The disclosure statement (sample below) identifies the claimants that need to be disclosed: any member that is expected to have covered losses that will exceed 50% of the selected specific retention. Limiting this list to those representing a potential serious loss will expedite the process; however, you need to be careful to list all members that are known to you.

No matter how long or short your list, it is critical to provide the following data for each claimant:

  • Diagnosis or diagnoses—allows the reinsurer to identify chronic or ongoing care which is highly predictable in nature.
  • Prognosis—helps identify a near term resolution versus an ongoing situation and helps identify future costs. An estimate of future costs should accompany a prognosis.
  • Charges/claim amount—identifies the magnitude of the claim.
  • Current status and future treatments—supports the information provided in the prognosis.

When these items are provided in a concise but thorough manner for each disclosed claimant, the process can usually be completed very quickly with little, if any, additional discussions of clinical details.

What are the possible outcomes?

Most likely the disclosure will reveal a normal level of catastrophic claim activity of an acute nature, which allows the reinsurer to confirm the terms as originally priced.

Another scenario is that a chronic claim is identified to have a high probability of continuing into the coverage period in question, and a separate deductible may be assigned to that claim if it is likely to exceed the retention. This has now become a known claim to both you and the reinsurer and, therefore, uninsurable. A basic premise of insurance is that known events with predictable costs are not insurable.

A third scenario is that the disclosed claim information is dramatically different from the claim information presented during the quotation process, and the reinsurer is forced either to materially modify its quoted rates or terms or to completely withdraw their quotation. This rarely occurs.


Disclosure Statement by Reinsured

(Used by Summit Re and ERC/Swiss Re)

You agree that any serious losses known by you as of the date you sign this Offer will be excluded from coverage unless previously disclosed to and accepted by ERC. Please enclose with this Offer any serious claim information that has come to your attention so that we may re-evaluate our underwriting. A "serious claim" is defined as any loss known by you for which:

  1. Charges incurred have exceeded 50% of the Specific Retention selected; or
  2. Charges are expected to exceed the Specific Retention selected due to the nature of the illness or injury; or
  3. Any Member remains hospitalized or disabled and is expected to exceed 50% of the Specific Retention.

Information submitted for each serious claim should include the diagnosis or diagnoses, prognosis, charges/claim amount, current status, and future treatments.

Licensing—Are Your Coverage Providers Compliant?

Brokers, managing underwriters, and reinsurers are subject to a wide variety of licensing and compliance requirements. Summit Re believes in playing by the rules and a level playing field. To that end, we have obtained a wide variety of licenses to meet specific state requirements (e.g., general agency, reinsurance intermediary broker or manager, managing underwriter, general business corporation). Can you imagine selling against an unlicensed HMO? We are aware that some of our competitors have taken shortcuts in these regards on the employer stop-loss and/or HMO reinsurance business. You might ask the sales representatives of other carriers or managing underwriters if they have all the required licenses. You should have them explain how they are licensed and show you a copy. It’s only good business to deal with companies which are properly compliant, especially in today'’s environment of close scrutiny.