It is imperative that the MEWA/AHP acts conservatively when purchasing stop loss as it is the backstop that protects it from financial ruin, along with reserves.
A MEWA/AHP must have all its stop loss claims covered 100% of the time. It cannot afford to have stop loss claims denied, unlike a self-insured employer, because they do not have significant income from operations or credit facilities to absorb a loss.
If a MEWA/AHP fails from imprudent stop-loss-related decisions made by its board or managers, they will be held accountable to the members and the DOL. Therefore, caution should be the creed of those who make these decisions.
Areas to consider:
AM Best Ratings
Visit ambest.com and look up the stop loss insurer’s rating.
Ratings are like school grades; you want “A’s” only.
Also review the financial outlook. If it says under review with “Negative Outlook,” avoid this insurer, as AM Best has detected something that may affect the insurer’s financial security.
Avoid insurers with an “A-” rating.
These might be a good solution when insurance companies that provide stop loss have little capacity and rates are extremely pricey. Currently, that is not the case in the stop loss market.
MEWA/AHP Stop Loss rates and terms are very competitive right now, with lots of insurers striving to write this risk.
Captives are not worth the risk when “A” rated, regulated insurers with significant balance sheets can provide the coverage with reasonable pricing.
A normal stop loss policy is not designed for a MEWA/AHP. In fact, many stop loss policies exclude MEWAs.
It takes careful negotiations with the insurer and a highly skilled stop loss expert to re-engineer the policy to cover a MEWA/AHP properly. Have your attorney review the final policy form before purchasing.
MEWAs/AHPs have a higher stop loss claim denial rate than single employers who purchase stop loss, so buyers need to be very astute and have the right expert assist them.