Services - Risk Pools, A Creative Solution to Lower Stop Loss Expense
The optimal approach to managing your plan exposure to catastrophic claimants may require more than just a stop loss policy at a set deductible. This may particularly be true if your organization has multiple divisions or locations with separate benefits cost accounting and/or risk tolerances.
An upfront risk pool accommodates varying or lower risk ‘attachment’ (i.e. deductible) at thresholds below the contracted stop loss deductible – which in result, can be set at a higher dollar level with lower fixed premiums.
What Is It?
A risk pool is a re-allocation of actual high claimant expense within the pool parameters and shared amongst participating units.
Cost or “charge back” is based on actual claims within the pool and shared amongst all units – not a pre-determined rate. As a result, it is not insurance, but more appropriately, a budgeting tool.
How Does It Work?
Actual operation will vary, but individual high claimants in excess of the pooling level (e.g. $100,000) are tracked and reported on a monthly basis, by participating unit (e.g. a five division organization).
Incremental claim expense in excess of the pool level and below the stop loss deductible (e.g. $500,000) are aggregated and divided by the total number of covered employees. This produces the per employee “risk charge” which is multiplied by a unit’s enrollment.
Any reimbursement due a unit (for exceeding the pooling level) from the latest period is deducted from the risk charge to arrive at the overall net “charge back”. Depending on claims experience, this may be a credit to the unit (if reimbursed claimants exceed risk charge) or an expense if it is primarily risk charge.
An internal risk pool offers a plan sponsor several strategic advantages, including the ability to:
Consolidate varying stop loss deductibles and policies into one contract at a higher deductible – and lower expense.
Maintain varying pooling levels based on risk tolerance of individual units and/or historical stop loss contracts – particularly helpful post-acquisition of divisions/locations with ongoing autonomy.
Record and monitor possible cross-subsidy of higher cost units by lower cost units
Actual criteria will vary, but typical characteristics include:
A plan population of 3,000 or more covered employees, allowing some degree of claim credibility
Multiple divisions or locations to allocate expense
High claimant reporting capabilities by the health plan/TPA (similar to those required for stop loss purposes)
Internal reporting of enrollment by participating units
A tolerance for risk volatility
Aegis Risk is eager to more fully discuss this creative approach. In implementation it can save several hundred thousand dollars, if not more, in premium expense. It serves as one example of our dedicated and knowledgeable approach to medical stop loss and related risk management issues.