Is Your Liability Coverage Adequate?

This article is part of a series of case studies—real stories of how managed care companies increased profits by using Summit Re’s resources to increase sales, decrease expenses, and manage claims. “I confess through my own fault, in my thoughts and in my words, in what I have done, and what I have failed to do.” Although these words are part of the Confiteor, a Catholic prayer in which persons saying the prayer confess their sins, it could be the start of a discussion of errors and omissions (E&O) and directors and officers (D&O) coverages.

Errors and Omissions

E&O insurance policies cover things a company does, things a company does not do, or things that simply do not turn out as a customer or other third party expected.

E&O for a managed care plan covers you for the vicarious liability assumed for the business processes that are part of a health care delivery system, such as credentialing, UR, and claims. An IPA can be sued for malpractice, since patients, through the IPA’s advertising, may assume that their physicians are under the IPA’s control and the IPA is liable for their actions. Another emerging area is security and privacy liability, including health care history and personal information.

Directors and Officers

D&O coverage is designed to protect the officers and directors of a company for liability associated with business decisions and certain employment practices. Liability can arise from decisions regarding merger and acquisition disputes, failure to perform fiduciary duties (such as signing contracts that harm the value of the company’s stock), actions that violate anti-trust regulations, and business interference, to give a few examples. Liability can also arise from employment practices, such as discrimination, harassment, or wrongful termination.

D&O insurance policies provide protection for a company’s directors and officers whose personal financial assets can be put at risk in the event of a lawsuit regarding their decisions. It’s difficult enough to lose company financial resources because of inadequate or inappropriate insurance coverage; imagine how it would be if your own personal assets were at risk as well.

Coverage characteristics

There are no standard E&O and D&O policies. Each insurer drafts its own policy forms and some fail to provide coverage in key areas for health plan exposures. A recent study showed that over 50% of directors and officers requested changes in their insurance coverage when they learned what was NOT covered under their current program.

Premiums are a function of the case size, liability and retention and can range from $10,000 to $100,000. Coverage, not price, is key because potential liabilities are so large.

Free coverage analysis

A free analysis of your current coverage is available to see if it’s possible to access better coverage at better rates. To give health plans access to better E&O and D&O policies, Summit Re has an arrangement with a national firm that specializes in property and casualty insurance products specifically designed for the health care industry.

We’ve offered this analysis of E&O and D&O coverage to several clients and they have appreciated the additional options presented as a result. We can do the same for you. To get started, please send us a copy of your current E&O and D&O policies. Typical insurer markets that provide these types of coverage include Lexington, Darwin Professional, Lloyd's of London and OneBeacon. Our program manager has access to all of these markets. We are happy to disclose all commissions and service fee arrangements.

Family Planning Rider

This article is part of a series of case studies—real stories of how managed care companies increased profits by using Summit Re’s resources to increase sales, decrease expenses, and manage claims. What do you do when your customers repeatedly request coverage which you are prevented from offering? This client turned to Summit Re for the solution.

The conflict

A large, regional HMO client had received repeated requests from its insured employer groups to provide coverage for family planning services. Because the health plan was owned by a Catholic hospital system, it was not able to accommodate these requests through its traditional HMO products. The health plan contacted Summit Re for assistance in solving this ongoing problem.

The resolution

Summit Re has a relationship with Advisors, LLC, a Michigan-based company that provides specialized group insurance consulting, product management, provider contracting, and network development services. Summit Re knew that Advisors, LLC had an arrangement with Unified Life Insurance Company (licensed in 45 states and the District of Columbia and rated B++ by A.M. Best) to provide independent, supplemental group insurance policies to selected Catholic-sponsored HMOs. Unified Life's Family Planning product and the Unified Life/HMO business arrangement are specifically designed to provide HMOs with an effective means to meet client demands for family planning services and still remain compliant with the ethical directives of the Catholic church and state insurance laws.

Flexible components

The flexible package of covered services operates with HMO, POS, or PPO plan designs. These services may be covered in any combination to meet individual employer group needs:

  • Artificial insemination services
  • Tubal ligations
  • Vasectomies
  • Pregnancy terminations
  • Oral contraceptives
  • Contraceptive devices

Direct administration

The Unified Life Family Planning product is issued directly to each employer group. As a consequence, the I.D. card of the Catholic sponsored HMO is not used at the pharmacy, claims for drugs and services are not the HMO's financial responsibility, provider services are provided through independent Unified Life provider contracts, and the HMO's filed certificate of coverage and rates can specifically exclude family planning services. Under the Unified Life approach, the HMO provides only limited cooperation by assisting the client with Unified Life set-up arrangements, providing monthly eligibility files and collecting premium. Often, the last service can be facilitated by a bank-trust arrangement.

All appropriate policies, benefit schedules, rates and forms are filed for each HMO arrangement with the state authorities by Unified Life. Each covered group is issued a Unified Life policy and all eligible members are given a benefit schedule and plan administrative information. Unified Life contracts independently of the HMO with a prescription benefit manager for contraceptive prescription services and medical providers for all other plan services.

Simple process

The Family Planning product operates very simply with no special actions required of employer groups and minimal member involvement. A brief summary of the product's operation follows:

  • At the point of group installation, the HMO transmits the eligible membership data to Unified Life.
  • Unified Life provides benefit notices to all covered members, which are delivered along with the HMO's standard member material. The benefit notice informs members of the benefit services available, the list of participating providers and Unified Life's toll-free telephone number to be used for all Family Planning benefit inquiries.
  • Covered members are encouraged to use Unified Life's network of participating providers for the delivery of covered services. If members use other providers, Unified Life will pay the provider up to the level of Unified Life's fee schedule. No referral from the primary care physician or plan service authorization is needed by the member.
  • Covered members using contraceptives for birth control purposes are given a special prescription drug ID card which operates like a standard ID card at the pharmacy, but only for contraceptives.
  • Medical service providers directly bill Unified Life and are typically paid within two weeks of receipt.
  • Unified Life delivers a group insurance policy to each employer group.
  • Unified Life receives monthly electronic eligibility updates from the HMO.
  • As a service to the employer group, the HMO collects a combined (HMO and Unified Life) premium from all covered groups and wire transfers the Family Planning product premium to Unified Life monthly. Some clients prefer to use their banks for premium receipt and dispersal functions.

Epilogue

Summit Re facilitated a meeting between the health plan and Advisors, LLC. The health plan and Advisors LLC worked out a plan that was specifically tailored for its marketplace. The program was implemented with ease and has been operating successfully.

Extend Your Product Line With Ancillary Benefits

This article is part of a series of case studies—real stories of how managed care companies increased profits by using Summit Re’s resources to increase sales, decrease expenses, and manage claims. Although our primary focus is protecting your company’s balance sheet through excess of loss reinsurance coverage, we also help you accomplish your strategic objectives with a broad array of other products and services.

This case study addresses adding ancillary benefits to your group medical plans, such as group term life, disability, dental and vision coverage. Summit Re provides these ancillary programs through Companion Life Insurance Company, rated A+ (superior) by A.M. Best. Companion Life offers competitive benefit programs which can be customized to fit your market needs.

Why Ancillary Benefits?

Most employers prefer the simplicity of one source for all their employee benefits, if possible. Agents appreciate the reduction in paperwork associated with working with one entity and are pleased when told that their ancillary sales through the health plan qualifies for the same bonuses as any other sale.

Customized Programs

Here are a few examples of ways the program can be customized:

  • Separate or combined billing
  • Propriety benefit and rate options
  • Proprietary brochure with your branding, e.g. logo, colors, typeface.
  • Flexible sales compensation, bonus and incentive trip options
  • Rating ability in your sales office

Companion Life has the experienced personnel to help you successfully market these products, including dedicated sales specialists in these product lines.

One Company’s Story

ABC Health Plan previously worked with a major HMO excess reinsurer with ancillary product capabilities in these product lines. However, the company was sold and service deteriorated. The new owner put less emphasis on ancillary products.

This health plan in the past was very successful at marketing these programs and had even assumed risk through a captive arrangement. Over time, they decided they prefer the non-risk approach where they’re strictly a distributor of the products and have no ongoing administrative role or underwriting risk.

As service issues persisted, they put their ancillary products out to bid. Summit Re assisted the client in development of the RFP, which was then used as a template to evaluate carrier bids. Companion Life’s bid included not only a formal response to the RFP, but also on-site presentations to personally address all product and service options, issues and concerns.

ABC Health Plan moved all of its ancillary product business (life, dental, and disability) to Companion Life Insurance Company. The relationship has “worked well” and ABC Health Plan is “very happy” with Companion Life.

Managing Risk with Summit ReView

Managing risks effectively is critical to the financial health of your company. It starts with accurate risk analysis and ends with cost-effective risk management strategies. This is a complex task, but it is now easier since we have introduced Summit ReView. Summit ReView is a package of consulting services designed to provide detailed analysis of risk exposure as well as recommendations to mitigate those risks. Some of the services included in Summit ReView include:

  • Our proprietary InSight analysis, which helps you determine if you should purchase reinsurance coverage and, if so, the appropriate deductible levels and average daily maximum limitations given your claim history, contracted arrangements with network facilities and referral patterns. (See Insights into large claims.)
  • A detailed evaluation of your medical management department’s structure, policies and procedures, with comparisons to nationally recognized benchmarks and recommendations for improving program efficiencies and effectiveness.
  • Our reinsurance “Report Card,” an objective measure for comparing reinsurance options.
  • A comparison of material contractual provisions contained in the excess loss agreements issued by current leaders in the health plan reinsurance marketplace.
  • A high-level assessment of the financial competitiveness of your pharmacy benefits management program.
  • An assessment of your directors and officers/errors and omissions policy.
  • Referrals to consultants who can serve as interim executives and assist with strategic planning.
  • An analysis of your investment and cash management strategies and recommendations for improvements.

These services may be “unbundled” and pricing depends on the options selected.

With our experienced, talented people who grew up with pricing, underwriting, and administering medical excess products and our “bird’s eye view” of the marketplace, we can offer you additional perspectives that often prove invaluable in helping you develop on-target risk management strategies.

Five essentials for evaluating predictive models

Predictive modeling uses your vast store of information to forecast future needs for medical resources. By becoming a knowledgeable purchaser and user of predictive modeling services, you can enjoy a return on your investment in the areas of care management, underwriting and benefit design.

Key Factors for RFP

There's been an explosion of predictive modeling services, each with different methodologies and technology designs. Ineffective predictive modeling— through either poor models or data—wastes your valuable resources and may have a negative impact on your members. However, by understanding how to assess the offerings and apply the technology once you have purchased it, predictive modeling can realize the promise of using information to significantly improve value in health care. The following factors can be used in a Request for Proposal (RFP) to help you select a vendor:

Accuracy

Always ask for the model's R-squared measurement, the commonly accepted measurement of a predictive modeling solution's accuracy. Reliable vendors will know their R-squared measurement.

Vendors should be able to demonstrate both the sensitivity and specificity of their solutions, especially for case management programs. High sensitivity indicates positive predictive value: an ability to identify most of the people who would benefit from a care management intervention. Specificity or negative predictive value is the ability to limit the number of false positives or people who would not benefit from a care management program. Sensitivity and specificity are important so you can assign resources where they're needed most.

Transparency

Transparency means the ability to differentiate among the data points. For care management programs, transparency means clinicians can look underneath the risk scores to the level of individual claims so they can devise appropriate interventions. A risk score is not particularly helpful for care management nurses; they need a way to understand what's driving the risk. To this end, member profiles should include a listing of all episodes of care and the key services involved in their treatment.

To evaluate transparency in your RFP, ask whether the model is a rules-based or neural net solution. In general, you should look for rules-based models, because they match data patterns to clear clinical rules that identify such things as the disease, type of episode, co-morbid conditions, and drug treatments. In a good rules-based model, you can easily identify these risk markers.

In contrast, neural net or so-called black box algorithms are not clinically based and are technically complicated, so you have to possess real data mining expertise to understand how a specific risk score has been compiled. This robs clinicians of many of the advantages that predictive modeling should deliver for care management. Black box algorithms also make it difficult for you to check the validity of the model.

Interoperability

Your RFP should ask whether the vendor supports your relevant database technologies, so they can load the data quickly and reliably into their model's data mart. You should also ask if supporting databases will be exported to your care management, underwriting, and actuarial applications.

Another key question is how the model defines and groups care— by procedure, diagnosis, or episodes of care. Using fully fleshed-out episodes of care results in better predictions since the groups are clinically homogeneous. This approach takes into account all of an individual's underlying clinical factors, not simply a diagnosis or severity indicator.

Supports operational needs

The solution selected must adapt to your operational issues and must generate predictions as often as your business needs dictate. Also, the data used in the solution must be fresh, reliable, and accessible. In particular, it should be refreshed at least monthly to be available for client renewals.

Finally, the solution must be flexible enough to use the data that is available, e.g., medical only, pharmacy only, medical and pharmacy combined. It should also be able to incorporate emerging data sources, such as lab results.

Industry credibility

One of the most obvious markers of industry credibility is market penetration. The RFP should probe whether others use the solution and if they will speak to its value.

Because predictive modeling is changing and improving at a rapid rate, credibility is not just rooted in the solution itself, but in the ongoing support the vendor offers. Upgrades and support require a team that fully understands not just the technology, but also how health care works. The RFP should check whether the support offered includes an integrated team that brings together IT, clinical, actuarial, and underwriting experts.

The information in this article is subject to change without notice. This article contains proprietary information, which is protected by U.S. and international copyright. All rights are reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without the express written permission of Ingenix, Inc. Copyright 2006 Ingenix, Inc.

Getting your D&O and E&O money’s worth

Maybe you are, but then again, maybe you’re not. Errors and omissions (E&O) policies cover things a company does, a company does not do, or that don’t turn out as a customer expected. Directors and officers (D&O) insurance policies provide protection for a company’s directors and officers whose personal financial assets can be put at risk in the event of a lawsuit. There are no standard D&O/E&O policies. Each insurer drafts its own version, and many fail to provide coverage in key areas. If the unfortunate happens and you become the target of a lawsuit, you don’t want to risk losing precious corporate – or personal – financial resources because of inadequate or inappropriate insurance coverage.

As part of our continuing effort to find ways to service you, Summit Re has entered into an arrangement with a national firm that specializes in property and casualty insurance products that are designed for organizations in the health care industry. This alliance was formed to help health plans gain access to better D&O and E&O policies. As part of this arrangement, we are able to offer you a complimentary analysis of your current coverage. A recent study showed that over 50% of directors and officers requested changes in their insurance coverage when they learned what was NOT covered under their current programs.

To perform the analysis, we will need copies of your current D&O/E&O policies. We will determine if we can improve the coverage – and maybe even the pricing. Please contact your Summit Re representative to begin the process.

What are you, Summit Re?

“What is Summit Re, a broker?” ask some individuals in the industry who haven’t worked with us before. Technically, we are regulated as a Reinsurance Intermediary Broker, which is very different from the retail broker you may have dealt with before. We place reinsurance for health plans, but only for ERC/Swiss Re. And we do so much more: we’re responsible for underwriting each risk, developing and maintaining underwriting and pricing manuals, drafting contracts, processing claims and premium payments, servicing accounts, and maintaining managed care vendor relationships.

The health plan reinsurance marketplace is divided roughly in half between coverages that are delivered directly, which is the way we do business, and those placed through brokers. Which is better? Competition keeps all of us on our toes, but here are reasons we prefer direct distribution.

Deal directly with the decision-makers

Your Summit account team doesn’t just sell a coverage, it prepares and delivers the contract language, pays claims under that contract, and works with your medical management team to reduce current and future medical expenses.

Short distribution chain, low expenses

ERC/Swiss Re retains the risks it writes, so there are no back-end pool and intermediary expenses. Summit provides home office services and sales at a cost comparable to broker loads alone.

It’s a technical sale—we’re a technical company

Summit Re has 3 FSA-level actuaries and 2 CPAs that get involved in your coverage issues. We can tell you we cover LTAC days as standard inpatient days, not restricted step-down days—and be sure we pay the claims that way. Our sales cycle starts with understanding your risk, not just quoting on your current coverage.

Do you work with a retail broker today? You can still get a Summit Re quote. We compete with traditional brokers every day. The broker field is extremely competitive, but the number of reinsurers they have access to is not very large. And that list doesn’t include the largest— Swiss Re, only available through Summit Re.

Putting Service in Service Standards

We set standards for ourselves so you can reap the benefits of timely and accurate service. Our claims and contracts staff prides themselves not only on meeting the service standards, but also consistently exceeding the standards.That means you can rely on timely and accurate service from Summit Re so you can concentrate on your business without worries about your reinsurance.

service standards

Best of Both Worlds: Self-Funding and Managed Care

To control the rising costs of providing a medical benefit program, some employers look to self funding. HMOs that can offer administrative services only (ASO) or affiliate with third party administrators (TPAs) can bring both a self-funded approach and managed care programs to employers.

Selecting an MGU

HMOs who participate in the employer stop loss market should carefully select a managing general underwriter (MGU) with expertise in both managed care reinsurance and the self-funded market. Your MGU should also have full-service capabilities. Summit Re is a full-service MGU focusing on HMOs who participate in the employer stop loss market. Our managed care experience sets us apart from traditional employer stop loss carriers and managing underwriters.

Pricing and Underwriting

Summit Re’s staff of underwriters and actuaries is dually equipped to understand this combination of funding and managed care savings. We apply our knowledge in the development of competitive stop loss rates and aggregate funding factors for your self-funded clients. As one of the market leaders in HMO excess reinsurance, we have a unique understanding of HMOs and their excess medical risk. We review not only your provider contracts, but also your managed care protocols and your HMO experience.

Sales Support

Summit Re takes an active role in helping you place self-funded business. We are a phone call away to discuss strategy on individual accounts. In unique situations, we can assist you in the on-site presentation of the stop loss proposal to the employer. Once a group is sold, we focus on servicing the account.

Integrated Administration

Our rating and proposal system is fully integrated with our stop loss contract production, premium collection, and claims payment modules. This results in proposal-based policy issued quickly, accurate premium accounting, and timely claim payments. We also have an experienced staff in each functional area to ensure that personalized service isn’t forgotten.

Risk Transfer Flexibility

Summit Re works with two carriers who provide the employer stop loss product: Companion Life Insurance Company and Presidential Life Insurance Company. These two carriers allow Summit Re to write this product in all 50 states.

If you want to retain some of the risk but do not have an insurance company, there are certain approaches we can use that allow you to assume a portion of the risk written by one of our insurance company partners and managed by Summit Re.

If you have an insurance company to write the employer stop loss product, your carrier can keep some or all of the risk. Summit Re can provide some or all of the MGU services, or your insurance company can perform all the functions with Summit Re providing consulting services in specific areas.

Summit Re’s goal is to be creative, responsive and entrepreneurial, to help you meet your strategic goals for employer stop loss, whatever they may be!

Reinsurance Report Card: Does your reinsurer make the grade?

It’s that time of year again, time to review and renew your reinsurance coverage.  You may be tempted to select the lowest price per covered life. You may be tempted to do nothing and avoid the disruption of changing reinsurers.  You may be tempted to forgo reinsurance altogether.  After all, bottom line, how much difference could it make? There are sound financial reasons to reinsure; if you purchase the wrong coverage or select the wrong reinsurer for your needs, your plan will suffer the financial consequences.

Why reinsure?

Before we explore an unbiased way to compare reinsurance quotes, you first must decide if you even need reinsurance.  The goal of reinsurance is to remove volatility from your financial statement by replacing a highly variable cost with a relatively stable cost.

► Purchase reinsurance to control unpredictable risks—unpredictable costs, unpredictable utilization or both.  This applies to any benefits, including drugs.

► Purchase reinsurance to cover potential catastrophic claims, whether you define it as a $100,000 or a $500,000 claim.

► Purchase reinsurance if the risk is not likely to be minimized by provider contracting, case management and/or Centers of Excellence network.  Can you capitate or contract very tightly for a risk?

► Purchase reinsurance for insolvency coverage, conversion access, access to COEs or other services that are either not available elsewhere or the reinsurer has better terms than you can get directly.

Reinsurance Report Card

If you need reinsurance to reduce the financial volatility of your plan, the Reinsurance Report Card gives you an objective method for comparing reinsurance options. It is a standard approach to evaluate competing reinsurance proposals based on what is important to you, not what is important to the broker, MGU or carrier. It enables you to make the best value decision, which may not be obvious from just the price.

The Reinsurance Report Card addresses four general categories: Price, Coverage, Service and General.

Using the Report Card

Assign Weights

Start by assigning weights according to the needs of your plan to each criterion within a category to create a weighted grade for that category. Then assign relative weights to each category based on how important that category is to your decision.  Use the same weighting scheme for every proposal you evaluate.

Assign grades to each criterion

For each criterion, assign a grade from 1 to 10 with 10 being the best. If you don’t know how to grade a reinsurer for a heavily weighted criterion, you can use the Report Card to ask critical questions and probe to make sure you understand the proposal.

Calculate the final grade 

Multiply the grade for each criterion times the weight for the weighted grade.  Add the weighted grades for a category subtotal.  Multiply  the category subgrades times the weight for the category and total  the weighted category grades for the final grade.

Price—a place to start

When evaluating reinsurance proposals, it is natural to start with the price since you want the best value for your money.  Reinsurance should replace a highly variable cost with a relatively stable cost.  Price is a key factor in this decision and here are some things to consider when evaluating price.

price chart

Reasonable and understandable?

Is the pricing reasonable and understandable?  If the price looks too good to be true, then it probably is. If you have creditable claim experience or data, then you know if the price is reasonable for the risk.  Ask how the price was derived to determine if it is reasonable.  If the price isn’t reasonable for an initial quote, then you need  to be concerned about consistency.

Consistency

A consistent pricing and underwriting philosophy results in relatively stable cost of reinsurance which, in turn, helps stabilize your financial results.  You don’t want your cost of reinsurance to fluctuate with your catastrophic claim experience.  If you have one bad year, reinsurance rates should not double or triple.  Find out if the reinsurer bases experience on multiple years, that are then blended with manual rates.  The purpose of reinsurance, after all, is to absorb the bad years to smooth your financial results.  If your reinsurance costs simply follow your claim experience, then it is not performing as intended.

If you receive a quote that is dramatically lower than the other quotes, everything else being equal, should you take the low price as long as it lasts?  Plans that frequently change carriers, always chasing the lowest annual cost, may eventually discover carriers quoting with higher rates to financial strengthanticipate the short term nature of the business relationship.  Some carriers may even refuse to quote.

Alternative funding

Occasionally you may receive a quote for an alternative funding option, such as swing rates, minimum and maximum rates, or split funding where you retain a percentage of the premium.  Creativity in pricing structures is good, but it must have real meaning.  One valid reason for alternative funding is when the risk is so new that the reinsurer cannot anticipate and price for the experience.  Be on guard, though, if it appears the reinsurer is just playing with the coverage.  Flat rates are the norm and often these alternative structures are designed to give the appearance of low rates, without providing the protection expected.  Question any quote that is significantly lower than expected, because you may not be getting the coverage you need to reduce financial volatility.

Coverage Terms—what are you getting for your money?

To get good value for your reinsurance dollar, you need to carefully review what is covered. Reinsurance will reduce financial volatility only if the terms cover the risk of a few unpredictable catastrophic claims.

coverage terms

Medical services

To determine which medical services should be reinsured, start by reviewing your large claim exposure history. Then determine how new risks (technology, drugs and treatment), changes in networks, and new lines of business will affect your future large claim exposure.

Once you have decided which services may result in high cost claims, your next decision is whether to contract or reinsure the risk. How well will provider contracting or managed care programs handle the risk versus reinsurance? Keep in mind that some reinsurers assist with provider contracting and managed care programs. Determine if the reinsurer provides special coverage, or carveouts, for a specific risk, such as first dollar quota share of  NICU claims. Alternatively, is there a specific risk that you want to retain because of your ability to manage the care? Then perhaps you do not need reinsurance coverage for that risk.

How well does your reinsurer help you understand the adequacy of your coverage terms compared to your risk exposure?

Appropriate deductible

A sound rule of thumb for an appropriate deductible, regardless of the size of your plan or your lines of business, is to set the deductible so it generates between 5 to 15 claims per year. The number of large claims is a good measure of unpredictability. If you typically have fewer than five reinsurance claims, your plan is assuming too much unpredictable risk. If you average more than fifteen reinsurance claims, your plan may be dollar trading with the reinsurer for predictable claims; you are paying a profit margin to the reinsurer on claims that you should be retaining.

Are you adjusting the deductible for medical  inflation? Due to leveraged trend, medical inflation is higher on catastrophic claims.

Is your deductible appropriate for your surplus situation?  Before setting your deductible, determine the risk tolerance of your company.  If you are not strong financially or do not have ready access to capital, you need more reinsurance.

Are you adjusting your deductible for changes in membership levels? As you write more members or lose  members, remember to change your deductible to keep within 5 to 15 reinsurance claims per year.  If your membership decreases, lower your deductible; if your membership increases, increase your deductible.

Impact of limits

Are you aware of what isn’t covered by reinsurance which may increase the volatility of your financial results? For example, infusion drugs may be generating large claims and not be covered by reinsurance.

Is your reinsurance efficient?  At least 75% of the claims above your deductible (excluding coinsurance) should be covered by the reinsurance agreement each year for the past three years.  What appears to be a great reinsurance rate may simply reflect low daily inpatient maximums or other limits. Check the market for better coverage for your reinsurance dollar.

Are a particular facility’s claims being cut back? For example, you may have a significant number of claims at a local university hospital or children’s hospital at a higher cost than other facilities, and these claims are cut back by your reinsurer. Consider purchasing better coverage for that facility.

Are separate limits applied?  Daily limits should not apply to case rates or DRG contracts except for outliers. Some reinsurers still apply a daily maximum even if there is a case rate, which isn’t appropriate. This reduces your reinsurance cost but does not reduce the financial volatility of your plan.

Reinsurer definitions

Are “medical” definitions even necessary in a reinsurance contract? If the reinsurance contract uses your plan’s definition, you are assured that an outside party will not be second guessing your medical decisions. Reinsurance coverage should be predictable in order to protect you from unpredictable financial implications.

If your reinsurer believes that its own definitions are necessary, do you understand how they are applied and how they differ from your plan’s definitions? Do you understand the process for resolving differences in opinion regarding:

  • Medical necessity
  • Experimental treatment
  • Usual and customary
  • In lieu of inpatient hospitalization
  • Acute care

Suppose you determine that a bone marrow transplant is medically necessary for a claim, but your reinsurer decides it is not medically necessary. This usually results in a battle between medical experts—a waste of resources for everyone. Prevent this with reinsurance coverage that covers what you cover.

If a treatment is questionably experimental, it is almost always costly and a reinsurance claim; for example, a small bowel transplant in a baby is considered experimental by some reinsurers. You purchase reinsurance to cover high-cost, unpredictable claims, not to argue about experimental treatment.

Usual and customary can set arbitrary limits, so you cannot be assured of reinsurance reimbursement. This usually applies to physician fee schedules, but sometimes a usual and customary limit will be applied to inpatient costs based on an average cost for area. Normally the definition of usual and customary is not clearly worded so you don’t know exactly how it will be applied. Therefore, why should such a definition even be in a reinsurance contract designed to reduce volatility?

Some reinsurers offer to cover step-down care “in lieu of” inpatient care, typically if only inpatient services are covered by reinsurance. While managing care to a lower level of intensity usually makes sense both in terms of recovery time and cost, the concept is increasingly difficult to apply. Often nursing notes and hospital files are required to demonstrate the care was truly “in lieu of” acute hospital care. To avoid problems, look for a standard reinsurance benefit for drop down facilities.

What is acute care and what is chronic care? This can be a gray area with legitimate disagreements between qualified medical experts. Where does a particular claim fall on the continuum of care scale? You should be able to make a qualified medical decision without concern that there is a different definition in your reinsurance agreement.

Reinsurance Claims and Premium Service Standards

As you evaluate your reinsurance options, keep in mind the industry standards for claims and premiums.  These are quantitative standards that are easily measurable and this is the level of service you can reasonably expect.

claims turnaround

Claims turnaround—less than 20 business days.

Claims accuracy—99% or better.

Expected reimbursement

Are you reimbursed what you expected 95% of the time? What is the process for resolving claims disputes? Is there a good working relationship with the reinsurer’s claims department? Is its claim audit process acceptable?

Reporting—You should expect quarterly claims reports and quarterly managed care savings reports.

Electronic processing—Does your reinsurer process both premiums and claims electronically? This should be a standard procedure.

Contracts and General

contract and general chart

Treaties to client—within 30 business days of signed binder.  Since treaty terms are so critical to the value of your reinsurance coverage, it is important to have the treaty to review within 30 days after negotiating the purchase in order to quickly resolve any issues.

New customer installation—within 30 days of coverage effective date.  Installation should involve financial, administrative and medical management staff.  The first step is the administrative aspects of installation for premium payments and claim submissions; second, the contract treaty terms; and third, setting up managed care programs.

Reinsurance rep visits in person—at least twice a year. While there is nothing wrong with an occasional golf game, visits should be meaningful and provide real value to you.  Does your rep understand your strategies?  Share industry trends?  Offer solutions?  Does your reinsurer’s managed care, administrative and claims people visit as needed?

Consultative care management services available

You should reasonably expect your reinsurer to provide large claim advice, support, and research.  Does your reinsurer initiate the contact as a result of receiving a 50% notice on claims?

Managed care vendors—Does your reinsurer provide access to a portfolio of attractive managed care vendors at preferred pricing?

Reinsurer source of other product and service solutions

► Employer Stop-loss

► Out-of-area indemnity

► Group life and ancillary products

► High level job referrals

Click here for a PDF version of the full Report Card.