High-Cost Claims and Stop-Loss Insurance: How Self-Funded Employers Can Mitigate Significant Losses
If you have a self-funded health plan, stop-loss insurance (also known as reinsurance) can help protect your organization from high-cost claims – unpredictable claims that are considered catastrophic to the plan. Certain forms of cancer, premature birth, and kidney failure, to name a few, can all cause a high-cost claim. Stop-loss insurance mitigates the impact of possible high-cost claims.
What Is Stop-Loss Insurance?
Stop-loss is additional insurance purchased by employers that protects them from assuming 100% of the liability for claims losses.
The insurer’s liability begins where the employer’s liability stops – typically after a total dollar ceiling or aggregate cap is reached during a contract period. Another type of stop-loss insurance – specific-stop-loss (or individual stop-loss) – protects the employer against a high claim from any single employee. Generally, all but the largest self-funded employers have both types of stop-loss insurance in some form.
How Much Does Stop-Loss Insurance Cost?
The cost of stop-loss insurance varies widely based on several different elements. Insurance companies use mathematical underwriting models to analyze historical claims data to project future coverage costs and estimate the value of coverage per employee per month, basing the premium on the number of participants, the age of participants, and other factors.
Network savings performance is a key element that carriers use to calculate an employer’s stop-loss premium. The Alliance proactively reaches out to carriers to provide the most up-to-date network data, ensuring our 340+ employer-employer-members receive the best rates possible. (Here’s a list of stop-loss carriers we’ve evaluated for our employer-members to use.)
The Alliance uses bundled payments and sets fixed fees with providers, like dialysis centers, to reduce high-cost claimants. Additionally, by basing contracts on a percentage of Medicare, we cap payments to providers which makes costs more predictable for employers.
The Importance of Primary Care and Preventative Health
The best defense against high-cost stop-loss insurance? It’s the same defense used against high-cost claims: preventative health.
Direct Primary Care is becoming a popular tool for employers due to its undeniable value in preventing common, chronic diseases. By catching and preventing diseases (like diabetes that can lead to kidney failure and other highly expensive care) before they manifest into high-cost claims, employers can make a real difference in their health plan costs – and most importantly – their employees’ well-being.
Additionally, Direct Primary Care creates a setting in which the primary physician acts as the patient’s “quarterback,” and can guide employees towards better decisions and to in-network, high-value specialists when necessary.
An Employer’s High-Cost Claim Story
One of our employer-employer-members had a patient suffering from end-stage renal disease (kidney failure,) and was placed on daily dialysis after being referred to an out-of-network provider. And because the TPA did not redirect their care, the employer was spending $27,000 every week – the equivalent of $1.5 million per year – on that patient alone.
The Alliance was able to help the employer by introducing them to a dialysis vendor that would save them 50% of the annual cost. Though that’s significantly less than what they paid in 2020, had the patient been directed to a provider within The Alliance network from the beginning, they would have paid less than $370,000 per year.
These situations are why having access to – and understanding – your data is important. It’s also why knowing your fiduciary responsibility as the plan sponsor is a vital component in directing your patients to seek high-value care.
How Else Does The Alliance Help Employers Manage Claims?
Care navigation plays a fundamental role in helping an employer guide a patient to an in-network, high-value provider from the get-go. These high-cost claim stories showcase the incredible value of Direct Primary Care, which helps establish that healthcare “quarterback” who serves as the patient’s advocate and care navigator.
Another tactic employers can use to catch and prevent high-cost claimants is requiring pre-authorization for certain tests and procedures.
Additionally, through SmarterHealth℠, The Alliance uses licensed tools to identify patients at risk of becoming a high-cost claimant and works with the employer, using employee health guidance programs, to help them seek the lowest-cost, best-value care.
Lastly, The Alliance uses tools like bundled pricing and Direct Primary Care, and contracts with high-value providers based on a percentage of Medicare (Reference-Based Contracting by The Alliance®,) to help employers better manage their claims and keep costs in check.