Generally speaking, stop loss insurance is coverage for catastrophic risk. Events such as unexpected surgeries, hemophilia, premature births, cancers, virus outbreaks, and genetic diseases, can cause a higher-than-anticipated amount of claims. Stop loss insurance exists to limit an employer’s liability to a specific, defined amount.
Stop loss insurance is essential for organizations such as IPAs, provider groups, and those that opt to self-fund their medical plans. Stop loss is also an essential coverage for hospitals.
Hospitals have contracts with health plans to provide services for their insureds. The hospital may take on certain risks for services that take place in the hospital, while the physician groups take the risk for office visits and drugs given in a physician office setting.
Generally, when a patient is very ill, hospital costs accumulate quickly. Hospitals need stop loss insurance to cover patients who incur significant costs that the hospital is financially responsible for, regardless if the patient is an employee or a capitated member.
Typically, hospitals decide on a dollar amount to self-insure and then the insurance carrier will cover the remainder of the costs, according to the policy parameters.
Hospitals buy stop loss for two different risks. The first is for their self-insured health plan. This coverage is called Employer Stop Loss, or ESL. The other is for managed care agreements where the facility is capitated. The coverage for this is called Provider Stop Loss, or PSL.
Employer Stop Loss (ESL) and Provider Stop Loss (PSL) have the same coverage structure. Both have a Specific deductible where, once a claimant’s total costs incurred within the policy year exceeds a specific dollar amount, the stop loss insurer reimburses that claim.
However, ESL has one added coverage that PSL does not; it is called Aggregate insurance, which provides coverage on all claims that are below the Specific Stop Loss in totality.
The risks for ESL and PSL are the same. Both cover patients who incur significant costs that the hospital is financially responsible for, regardless if it is an employee or a capitated member.
Care within the hospital or system is the least costly risk, as it allows for the greatest control.
In-facility is where, hopefully, most of the care is delivered. This is where stop loss should reimburse your actual costs of providing care with no profit.
We find many hospitals make the error of having the stop loss reimburse the cost, plus profit or billed charges. This is a waste of money, as the stop loss insurer prices your coverage based on your claims. If your claims are valued on billed charges, then the insurer will add their profit and margin to that number. This inflates the premium unnecessarily and results in buying more coverage than what is needed. Better to base the coverage on actual costs. If coverage is based on billed charges, then use 20% to 30% of billed.
However, the greatest risk for facilities is emergency out-of-area care. This is when a member or employee is in another state or city and is admitted to a hospital that deems its own prices and you have no contracted rate. This is when stop loss is most needed.
Stop loss reimbursement for out-of-area emergency care should be the paid amount with the highest per diem the stop loss insurer allows.
Out-of-facility contracted care is more expensive than in-facility care.
For contracted care, the stop loss reimbursement should be based on your contracted rates.
The stop loss deductible level choice is very important because it determines how much risk is assumed.
The challenge is that buyers think they are buying a commodity and look for the lowest cost, and therefore, increase their deductible choice to levels that make the coverage meaningless.
When this happens, the buyer confuses price versus cost. Cost is the premium minus the claim’s reimbursement, and price is the premium charge. This is what a risk-taker should focus on.
Every hospital stop loss insurance policy should be structured around these three buckets.
At HCP National, we lower costs even more by designing coverage that allows the facility to participate in the risk at the expected levels.
There are many methods of designing coverage, but the purpose of the coverage is to recover costs of care in-facility or out with the most efficient structure. Since 1994, this has been HCP’s mission. We are the largest certified minority-female-owned (WBENC & MBE) brokerage that specializes in stop loss, reinsurance, managed care, and liability coverage in the nation.
Our sole purpose is to ensure that you receive the best service and coverage possible, at an affordable and competitive rate. If you are ready to get started, please contact us.
