Stop loss coverage is a form of excess risk insurance that protects self-funded employer health plans. It helps manage costs for very large medical claims by having the insurance carrier pay for claims above a certain threshold amount. The plan fiduciary is responsible for the administration and management of an employee benefit plan. For a self-funded employer health plan, the employer is generally considered the plan fiduciary since they are responsible for purchasing administrative services, such as from a third party administrator (TPA). The TPA then provides various services on behalf of the employer plan.

1. American Risk UnderwritersAmerican Risk Underwriters
Presented ByPresented By
Jon Dailey ofJon Dailey of
American Risk UnderwritersAmerican Risk Underwriters
DateDate

2. HistoryHistory
• Labor Management Relations Act of 1947:
o Development of tax exempt trusts used as a
conduit for Insurance premiums and direct
benefit payments
• Employee Retirement Income Security Act of 1974:
(ERISA)
o Removed barriers for employers to fund
their own employee benefit plans

3. Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-
Funded Insurance Plans

4. Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-
Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded
Plan

5. Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-
Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded
Plan
• Understand the Components of a Self-Funded Plan

6. Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-
Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded
Plan
• Understand the Components of a Self-Funded Plan
• Understand the Underwriting Components of
Specific and Aggregate Coverage

7. Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-
Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded
Plan
• Understand the Components of a Self-Funded Plan
• Understand the Underwriting Components of
Specific and Aggregate Coverage
• Understand the TPA’s Key Administration Role

8. Fully Insured Plan ComponentsFully Insured Plan Components
• Profit Contribution
• Margin
• Premium Tax
• Commissions, Fees
• Insurer’s Field Expense
• Claim Payment Costs
• Administrative
Expenses
• Rate Stabilization
Reserves
• Claims Reserves
Premiums
Claims
Insurance
Policy/
Certificate
Expenses

9. Self-Funded Plan ComponentsSelf-Funded Plan Components
Specific •
Aggregate•
• Claim
Component
Costs
• Administrative
Expenses
• Stop Loss
Insurance
• PPO/UM/
Vendor Costs
Contributions
Claims Employer
Health Plan
Expenses

10. Fully Insured vs. Self-FundedFully Insured vs. Self-Funded
• All Services Provided
o Utilities Paid
o Facility
Maintained
• Rules and
Restrictions Apply
• Profit to Owner
• Determine and
Purchase Services
o Choose Favored
or Lowest-Cost
Service
o Design Your Plan
o Control
o Financial Position
“Renting” “Owning”

11. Advantages of Fully InsuredAdvantages of Fully Insured
• Carrier processes and pays claims as well as provides all of
the benefit management services
• Carrier is responsible for establishing claim reserves
• Employer group pays deductible rates each month during
contract period
• Carrier absorbs excess loss
• Individual claims exceeding pooling point are paid by carrier
• Upon termination, carrier has responsibility for run-out claims

12. Disadvantages of Fully InsuredDisadvantages of Fully Insured
• No refunds to policy holder
• Must include State and Federal mandates
• Carrier identifies/keeps Reserves; employer
pays
• Highly regulated by DOI’s
• It’s not Stop-Loss

13. Self-Funded Economic BenefitsSelf-Funded Economic Benefits
• Premium Taxes
• Cash Flow
• Mandated Benefits / Regulation
• Self -Administration
• Profits

14. Premium TaxPremium Tax
• Savings Between 1.5% to 3.5%

15. Cash FlowCash Flow
• “Pay as You Go” or Trust Fund
• Checking Account or Reserve Fund
• Monthly Aggregate Advance
• Fiduciary Responsibility

16. Mandated BenefitsMandated Benefits
• Legislated Benefits or Design Choice
• Additional 5%-7%

17. AdministrationAdministration
• Fully Insured Costs 15% - 20%
o Management
o Marketing
o Advertising
o Legal
o Logistical
• Self-Funded Costs 3% - 5%

18. ProfitsProfits
• Publicly Traded Carriers = Pressure for Higher Profits
o Influence On Decisions
o Pressure On Providers
o Carrier can generate “profit” by admin
processes
• Fully Insured Profits 8% - 15% by design ….

19. Self- Funded Economic AdvantageSelf- Funded Economic Advantage
SummarySummary
Tax: 1.5% - 3.5%
Cash Flow: 1.5% - 3%
Mandated
Benefits:
5% - 7%
Administration: 12% - 15%
Profit: 8% - 15%
Potential: 28% - 43.5%

20. Advantages of Self - FundingAdvantages of Self - Funding
• Lower Costs
o Premium Tax
o Profit Margins
o Operating Expenses
o Cash Flow
• Control of Plan Design
o No Benefit Mandate
o Controls own
Reserves
• Tailored
Administration
o Choice of
Services/Provider
• Effective Claim
Processing
o TPA Relationship
• Effective Risk
Management
o Choice of Specific or
Aggregate

21. Disadvantages of Self - FundingDisadvantages of Self - Funding
• Employer Becomes Insurer
• Risk Assumption
• Provision of Services
• Asset Exposure

22. The Product – Specific andThe Product – Specific and
AggregateAggregate
• Specific Stop Loss
o Form of Excess Insurance Coverage that
provides protection for the Employer
against a high claim on any one Individual.
o Reimbursement generally after Specific
deductible is satisfied.
o Specific Advance

23. The Product – Specific andThe Product – Specific and
AggregateAggregate
• Aggregate Stop Loss
o Provides a ceiling on the dollar amount of
eligible expenses that an employer would
pay in total during a contract period.
o Reimbursement generally at the end of the
policy period.
o Monthly Option Available

24. Policy PeriodsPolicy Periods
• Fully Insured
o Incurred During the Policy Period (Effectively 12/24)
• Self – Funded – Variations in Effective Date
o 12/12 – Incurred and Paid During Policy Period
o 15/12 – Losses Incurred Three Months Prior To
Inception but Paid During Policy Period
o 12/15 – Losses Incurred During Policy Period and
Paid Up To Three Months After Policy
Period
o 24/12 – Losses Incurred During Twenty-Four Month
Period and Paid During Twelve Month
Period
o Other Variations Include:12/24, 18/12, 12/18

25. Self – Funded Work FlowSelf – Funded Work Flow
Administration
Services
Employer &
Employees
Plan Benefits
Paid
Stop Loss
Trust Fund
Accumulation
Reserves
Stop Loss Premiums
Investment Income

26. Monetary ComparisonMonetary Comparison
Fully Insured Self- Funded
100%
Fixed
Costs Variable Costs
Fixed
Costs

27. Stop-Loss UnderwritingStop-Loss Underwriting
• Data Required
o Current Census
• DOB, Sex, Dependents
o Current Disabled or COBRA Participants
o Current SPD/Summary
o Current and Estimated Participants by Percentage
o Other Carrier
o Current Funding Method
o Current TPA and PPO
o Commission Requested
o Paid Claims – 24 months
o Large Claims (At 50% of requested Spec. level) – 24
months
o Current/Corresponding Specific Level

28. Stop-Loss UnderwritingStop-Loss Underwriting
• Coverage Requested
o Specific Deductible Level
o Claim Accumulation (12/12, 12/15, etc.)
o Current Specific Rates
o Aggregate Coverage and Claim
Accumulation
o Current Factors
o Annual Maximum Requested
o Benefits to be Covered
•Specific: Medical, RX
•Aggregate: Medical, Dental, Vision, etc.

29. Stop-Loss UnderwritingStop-Loss Underwriting
• Request for Proposal (RFP)
o Proposed Effective Date
o Employer Name
o Address, City, State, Zip
o Other Locations
o Nature of Business
o SIC Code(s)
o Due Date

30. TerminologyTerminology
• Risk
o Possibility of loss; Subject to insurance
• Premium Components
o Cost of Healthcare
o Reserves: Funds set aside to pay claims
o Retention: Expenses or administrative costs
• Aggregate Factor
o The dollar figure that is multiplied by the number of covered
persons each month during the contract period to calculate the
AAD. It includes expected claims plus margins
• Aggregate Stop Loss
o The form of excess risk coverage that privides for the employer
againast the accumulation of claims exceeding a stated level.
This is protection against abnormal frequency of claims in total
rather than abnormal severity of a single claim.
• Annual Aggregate Deductible
o This number represents the overall limit of claim liability for the
group (employer). Beyond this point the Stop Loss policy
indemnifies the group at the end of the contract period.

31. TerminologyTerminology
• Actively-At-Work
o A contract provision that provides that the covearge will only be
available for employees actively at work on a full time basis on
the effective date of coverage.
• Paid Claims
o A payment made for health services (covered benefit) rendered
• Catastrophic Claim
o A claim so large that it materially effects the group experience
o Pooling in fully insured or specific excess in self-funded
• Incurred Claim
o Provider services rendered but not yet submitted for payment
• Run-in Claims
o Claims from a prior plan or carrier
• Run-out Claims
o Claims incurred prior to but reported/paid after contract
termination

32. TerminologyTerminology
• IBNR/ RBNP
o Incurred but not reported claims; reported but not yet paid
• Experience
o A comparison of total dollar amount paid premium versus paid
and incurred claims
• Experience Rating
o Use of an employers loss experience to determine rate level
• Lag
o Period of time between incurred and paid claim
o Reserves established to recognize lag
• Plan Fiduciary
o Responsible for administration and management of employee
benefit plans
o Generally the employer who buys services from TPA in turn
• TPA
o Provides host of administrative services
o Fiduciary

33. TerminologyTerminology
• MGU
o Managing General Underwriter
o Provides underwriting, rating and claims services on behalf of a
Carrier
• Trend
o Measurement of change over time in the cost of health care using
industry information and medical inflation
o Adjusts the cost of claims paid in the past to present value
• Expense
o TPA Administration fees
o Stop-loss premiums
o Broker commissions
• Medical Inflation
o Annualized factor on the cost of providing healthcare and Rx
services
• HIPAA
o Health Insurance Portability and Accountability Act
o National administrative provisions and security/privacy of health
data
• Conversion
o Carrier provides the conversion of medical coverage to an
individual basis for employees terminating from the plan

34. Test Your KnowledgeTest Your Knowledge
• What is Stop Loss coverage?
• Who is insured?
• What coverage is available?
• How is Stop Loss written?
• What is the role of the employer’s plan document?
• How is Loss defined?
• When are claims paid?
• What happens when someone leaves the plan?

35. DiscussionDiscussion
• SIIA
o Model Self-Funded Plan
• A Current Prospect