Introduction and Episode Overview
[00:00:00] Stacey Richter: Episode 479. "What Could Go Wrong Covering High Cost Claimants With Stop-Loss Reinsurance?" This is a slightly advanced conversation I'm having today with Andreas Mang and Jon Camire,
Understanding Stop-Loss Reinsurance
[00:00:30] Stacey Richter: This show today for sure, it's for plan sponsors and anyone on or about plan sponsors, but also listen if you are serving high-cost claimants some other way. Because what you'll learn here today is some insights relative to how plan sponsors go about making sure they can pay you.
To listen to this episode or read the show notes with mentioned links, visit the episode page.
Like if you work for, for example, some clinical organization. There's a, I don't know, 101 starting point of this conversation if you need it on stop-loss, which is episode 478 from a couple of weeks ago. This show is the, let's say, 201 level conversation that I'm having with Andreas Mang and Jon Camire about, as I said, stop-loss insurance and stop-loss insurance considerations.
And I'd like to start here. If you're a very large employer, you've got 10,000 plus say, plan members. The best stop-loss coverage terms are gonna be very, very different than if it's a smaller employer with 400 or 500 employees. So this is not a one size fits all and this is really relevant, especially since stop-loss coverage is a big ticket. And an extremely crucial decision.
Key Advice for Plan Sponsors
[00:01:43] Stacey Richter: Which is why the first piece of advice offered in this show, which is certainly a carry on from that earlier episode I mentioned 478 from a couple of weeks ago.
The one piece of advice to rule them all get a very, very experienced broker/consultant who works with self-insured plan sponsors of your exact size and has for a while. That is the one rule to rule them all.
Get this number one piece of advice right and you'll do a whole lot better with the rest of the to do's that Andreas and Jon shared today, which are piece of advice number two, get a whole bunch of stop-loss coverage bids from different vendors and get them every year.
Detailed Contract Provisions
[00:02:22] Stacey Richter: Number three, piece of advice, pay attention to a few key contract provisions. There are four contract provisions to be really watching out for. One is the runout period, making sure there's no new lasers, that there's renewal caps, and then mirroring provisions and Andreas and Jon really get into these in the show that follows.
And then last piece of advice, number four, piece of advice. Watch out with the eligibility.
So after we run through the advice portion of this podcast, I ask Andreas, by the way, this whole intro is turning into a giant spoiler alert, but after the advice portion of our broadcast, I ask Andreas and Jon what the biggest mistake they see plan sponsors make is.
And they both kind of agree, it's not balancing risk and expense particularly well. Andreas mentions how he was talking to an executive at a stop-loss carrier who in a moment of weakness, as Andreas tells it, this executive revealed that he was shooting for a 30 to 40% margin on the policies sold.
So yeah, buying too much stop-loss year after year means that the plan could be spending millions of unnecessary dollars for too much insurance. On the other hand, worrying too much about price and skimping and then finding oneself un or underinsured when that big high-cost claim comes through is also not good.
I'm summarizing some big wisdom from Andreas and Jon, as I said, so do listen to their thoughts.
After this in the show that follows, we get into the now what, knowing all of this, what is actionable. That we didn't cover already, and in short, we circle the wagons around getting into a collective and using a so-called panel approach, which gets explained.
Then last, but definitely not least, because you hear this on one after another Relentless Health Value episode. I mean, you ask anyone for advice and this one comes up. I was saying earlier the “Get a Great Consultant” was the one rule to rule them all, but this last one might be kind of like, hold my beer on that one.
Know how everyone is being paid from your consultant to the collective, to the stop-loss carrier and or their brokers. Get these disclosures. Watch for things that don't have to actually be on the disclosures. And sometimes you can sort of figure these out when somebody seems like they're moving a little wonky. Ask lots of questions.
So as I have said seven times already, today I am speaking with Andreas Mang. Who is senior managing director at Blackstone and CEO Equity Healthcare. I am also speaking with Jon Camire, who's also over at Blackstone. Jon is managing director and CFO Equity Healthcare. Jon is an actuary and he runs their stop-loss program over there. So yeah, I'm very pleased with myself for getting the likes of these two to talk with you today.
Normally right now I say, “My name is Stacey Richter,” and then I say, “This show is sponsored by Aventria Health Group.” What I'm gonna say today instead though, is that this show is also sponsored by Havarti Risk, which I am so thankful for.
The show Relentless Health Value actually does cost an unexpectedly large sum of money to create and produce, so I always appreciate when somebody offers to sponsor a show or help sponsor a show.
Havarti Risk empowers healthcare leaders like you to make smarter decisions that increase quality and lower the cost of care. Havarti s cutting-edge approach combines deep industry knowledge and also actuarial expertise with advanced technology to transform how you manage risk and optimize performance. I mean, look, when you're putting patients over profits and trying to manage that quadruple play that we talk a lot about on Relentless Health Value, you need partners who understand both the clinical and the financial sides of healthcare risk.
To that end, I go a ways back with Keith Passwater, who's the CEO of Havarti risk and moderated a panel a couple of years ago that he was on at the Society of Actuaries. Right? So I got myself invited to the Society of Actuaries meeting, and that panel was entitled: “Can health actuaries make the US healthcare system better?”
And I have to say, I really appreciated the thoughtfulness that Keith came into that conversation with. And in short, yeah, there's actually a lot actuaries can do to make the system better. If anyone can do it, let's get their big brains in on the mission.
So yeah, call Keith Passwater, call Havarti Risk. There will be links in the show notes. I really appreciate them stepping up with some dollars to support this pod and keep it on the air.
And with that, here is my conversation about stop-loss with Andreas Mang and Jon Camire.
Andreas Mang, welcome to Relentless Health Value.
[00:06:56] Andreas Mang: Hey Stacey, thanks for having me and thanks for having me back. Happy to, uh, chat about stop-loss with you today.
[00:07:02] Stacey Richter: It is a pleasure to have you back.
Jon Camire, thank you so much for being here today.
[00:07:07] Jon Camire: Thank you, Stacey. It's a real pleasure.
[00:07:08] Stacey Richter: There was a part one to this discussion and one of the things that came up loud and clear in that first part is to make absolutely sure if you're a plan sponsor, you have a broker who at that point is probably an employee benefit consultant who is really experienced in the plan sponsors, their exact size plan, their exact type of plan. There's just so many complications that may be relevant to a very specific size employer. So that's the first thing.
But beyond that, I'm gonna ask Jon this question. What are the pieces of advice that we really, really need to take on board? Like what are the best practices that the best employee benefit consultants and plan sponsors are putting into practice as it relates to stop-loss coverage?
[00:07:56] Jon Camire: So first of all, you know, they may going to three companies like they did for medical, you know, makes sense.
But this is a broader market. It's a unique market and there are carriers getting in and out all the time. And so you really need to market broadly. And I, by that, I would say several carriers at minimum. So that's one thing we see companies not marketing stop-loss even at all in a given year. And that's just a mistake.
[00:08:20] Stacey Richter: And so when you say marketing stop-loss, you mean getting bids from...
[00:08:24] Jon Camire: Yes. Getting quotes each year. Comparing contracts. Different carriers may offer different types of contracts. I think that leads into the next thing, which is really make sure you know what you're buying. Do not buy solely based on price.
For a company that's new to self-insurance, you know, you may be eager to wrap up a lot of decisions earlier in the year. A lot of companies, they're doing their work July, August. They're figuring out the plan choices, their carrier choices, their contribution strategy. They're getting their materials ready for open enrollment and stop-loss decisions tend to come later.
So you've already done your budget. You've already locked in things you want to do around contributions, you're printing materials and stop-loss decisions don't really even start to pick up until November. At that point, you might have already had open enrollment, and let's say the stop-loss market is telling you it's gonna be more expensive than you thought it would be.
You might be inclined to pick something that's cheaper than the average plan being offered. And in that way, you might be choosing a contract type that's gonna leave gaps in coverage. And that's something a year and a half later when the claims are starting to really roll in, you could really regret it.
And with stop-loss, it's really a risk management tool. So it's those little gaps that you leave in the coverage that you ultimately may come to regret.
[00:09:51] Stacey Richter: The question that you answered, Jon, is what are the pieces of advice that we need to really take on board? And it sounds like an important one is to make sure that you've got a series of quotes that you're getting every single year.
It's not just go back to the same, right? Like you have to kind of see what's going on out there in the market and then know exactly what you're buying. You mentioned the gaps, these unknown unknowns. Are there unknown unknowns that you kind of wanna point out here because they're known unknowns? If you've been doing this for a while.
[00:10:20] Jon Camire: Yeah, look, I think when you're making the decision, you know they're gonna put some quotes in front of you and a big long spreadsheet, some small little area that's gonna say, contract type. Something like 12-15, 12-24 or something like that. You don't really know what it is. You don't ask any questions and you just keep going.
Well, I'm gonna give you an example of a company that we recently got involved with that had a 12-15 coverage and why that's a problem. What that means is it's gonna cover claims that were incurred for the 12 months of the policy period, and anything for three months after the policy period that gets paid three months after the policy period.
So 12 months of the full calendar year is the incurred period, and then 15 months, which is the 12 months of the incurred period, plus three months of runout in the following period.
Well, what happens if you have, you know, that premature baby born on December 30th and they're in the NICU? Well, it's very unlikely that that baby is going to be out of the NICU, have all the claims submitted, have all the claims processed, have all the claims paid in the next three months and a couple of days.
And what happens, this company was actually smaller than we typically see that with about 200 employees so not a large plan at all. And the way the contract is built is anything that gets paid after March, they would've been completely on the hook for.
So in this situation, this premature baby did not happen, but the risk is that if it does, those premature triplets are in the the NICU for nine months or whatever, all those dollars are completely uncovered by the stop-loss policy. Now, if they had bought a different policy, like I was saying, 12-24, now they have a year of run out and you're closing that gap to a much, much greater extent.
[00:12:06] Stacey Richter: These terms, 12-15, 12-24, they, they sound very esoteric, but they're really important because exactly like with laser claims once a high-cost claim is identified, if you cross a plan year, now it's a known quantity and nobody's gonna ensure that quantity because there's a hundred percent risk and no one's gonna take that bet.
[00:12:29] Jon Camire: Yeah. And what you want to do is you wanna weave policy periods together with coverage that aligns exactly. So that there are no gaps there, or there are absolutely minimized. And you know, a good experienced consultant is going to do that. I think the comment that I wanna make, why you chose that shorter contract, that 12-15, a 12-15 contract is cheaper than a 12-24 contract. So, as I said, you've already locked in your budget, you're making the decision late in the year. You may impudently choose the 12-15 because it's saving you a hundred thousand dollars on the premium.
[00:13:05] Stacey Richter: So you have to make sure that you have some kind of coverage to cover those known claims if they cross a plan year, which yeah, sure, I can certainly see how that's gonna be an unknown unknown until it happens to someone.
[00:13:19] Andreas Mang: I wanna reinforce, this goes back to what we've now said a hundred times. The importance of your consultant, your broker, in this one case, when we shared with the CEO: Do you know that you potentially have unlimited upside, unlimited exposure? He said, Well, my broker told me we were totally buttoned up, right?
This goes back to this does get weed deep. This does get complicated. And you know, we don't expect the people in HR and even sometimes in finance to fully understand the intricacies of this. And so the importance of having someone there who knows how to do this, who has the experience and structures you in a way to protect you from that catastrophic loss is super important.
In this case, their broker, told them that they were structured properly and you know, to our horror, they were not right. And so we had to do some tap dancing there and some fingers crossed at the end of the year that there wasn't something like a preemie baby at the end of the year. And thankfully there wasn't.
But for a while there, who knows.
[00:14:13] Stacey Richter: So basically what you're saying is 12-15 is a little, maybe precarious? Is that what I'm understanding?
[00:14:19] Andreas Mang: Well, there's some situation where it could make sense though, Jon, like why is that even offered?
[00:14:23] Jon Camire: I think it's largely offered because there are companies that are selecting it, but I'm not sure that the companies, the companies that are selecting it, are doing it based on price. Not doing it based on risk. And I think in, situations of stop-loss, I think a lot of times you wanna think risk first and cost second.
[00:14:41] Stacey Richter: What I'm really, understanding here is that there's always gonna be uncertainty. I mean, that's what insurance is. It's figuring out how to balance, how to navigate uncertain terrain, which is not gonna be eliminated, and kind of buy down the uncertainty to a palatable level, such that, everyone feels confident here and that does take experience. Which kind of again, goes back in points to the making sure that the consultant is really good.
[00:15:12] Andreas Mang: It does.
[00:15:13] Stacey Richter: So we, we talked a little bit about the 12- 15 might be a little bit light, think about 12- 24, and we talked a little bit about the, kind of the structure of the contract.
What else do we have?
[00:15:22] Andreas Mang: Yeah, so let, let me hit three, three quick ones here. So common provisions in purchasing stop-loss contracts where you know it's being done by people who kind of know what to look for or have the volume to extract better terms: first is no new lasers, so that can be a provision that once the policy is written that you can't introduce new lasers despite what's happening in the risk pool.
Second would be renewal caps. So caps on what the subsequent years increase could be, so it's not limitless and unending in terms of upside.
Third, really important is something called a mirroring provision, meaning that the stop-loss contract has to mirror the medical plan's coverage provisions. So where you may say, look, we're gonna cover whatever infertility. They can't say, well, we're not gonna cover infertility.
So those are three really key contract provisions I just wanted to make sure we had in there.
[00:16:18] Stacey Richter: Yeah, I can definitely see how you don't include any of those that you could wind up with a bit of a mess on your hands. So for our contracting provisions to make sure that we include here is to really watch the 12-15, maybe consider 12-24.
But you know, obviously price is an issue. So again, you really need to have a broker who knows what they're doing, how you're structuring this whole thing. And then the last three that you just mentioned, Andreas, no new lasers, making sure that there are renewal caps there, and then also the mirroring provisions.
Is there anything else that we wanna put in our advice list?
Importance of Eligibility Audits
[00:16:54] Andreas Mang: We haven't touched on this one yet, but I do wanna, something I'm eager to talk about, and I touched on it last time, is eligibility. So companies, when you're self-insured, you have to be really. On top of your eligibility in terms of who's eligible for your plan, and are you covering people who are supposed to be on your plan?
So the 27-year-old kid who's still sitting on their parents' plan, Hey, guess what? They're no longer eligible. That 27-year-old kid has a catastrophic claim and it comes in. Who do you think's really, really good at eligibility? I'll tell you what. The stop-loss carriers are really, really good at eligibility. Right?
A million dollar claim comes in, they're gonna wanna make sure that that person who they're about to pay a huge amount for is eligible. And if they're not, guess who gets to pay for it? You the employer.
And so whenever we talk about things like eligibility audits, that can make some employers uncomfortable, they worry about creating friction in their workforce? Well, I'd be careful, right, because Murphy's Law is that when one of those catastrophic claims comes in, if you haven't been really fastidious about eligibility, that person's not eligible, you're gonna be on the hook for it. And that is a very bad outcome.
[00:18:04] Stacey Richter: Yeah. I will say I probably spend a little bit too long on the insurance subreddits on Reddit, and probably every day there is this question somebody writes, Hi, I am 32 years old and I'm still on my parents' plan, and no one has noticed. My claims are being paid. So, dot, dot, dot, right? Like there's a there. There's a lot.
[00:18:32] Andreas Mang: Dangerous game. It's a dangerous game.
[00:18:34] Jon Camire: It's risky.
[00:18:34] Stacey Richter: Yeah. Well, I mean, from the plan member perspective, or their kid, they're thinking they just won the lottery because they have their coverage and you should see the replies. Well, just keep, why wouldn't you just keep doing it?
You, you know, like, if you're thinking about it from just a rational, I'm trying to save money and I'm 32 years old, I can barely afford my rent perspective. Like why wouldn't you? It's just they almost look at it like I'm, I'm also on my mom and dad's cell plan.
[00:19:01] Jon Camire: Right. And I look, I would say that when we have had companies do it, and we certainly have had dozens. It averages, I'd say 2-3% of the dependents that are on the plan are not eligible. And it varies by company. Some do a better job of staying on top of it than others, but it's a real amount. It's not, you know, one, two people. It's in many cases, hundreds of people.
[00:19:25] Stacey Richter: Yeah. And it's one thing if, I guess you're paying kind of like for some 27 year olds or 32 year olds, physical every year, whatever.
But to your point, if something terrible would happen, now it's really bad for everybody because suddenly that individual is not gonna have their catastrophic claim. They're not gonna have coverage, or the employer's gonna wind up paying for it. Either one is, yeah, probably suboptimal for somebody.
[00:19:48] Jon Camire: Right, it's the worst possible time for something like this to happen, whether it be to the company or to the individual.
[00:19:55] Stacey Richter: Okay, so back to our main list here. Pieces of advice when it comes to stop-less coverage if you are a self-insured, pretty much anybody, here we go. We started out talking about the importance of the consultant or broker. And then we talked secondly get bids every single year, multiple bids, and then after that, contracting provisions, including the runout period. No new lasers, making sure there are renewal caps in there, and then also the mirroring provisions.
And then the last piece of advice is number four, watch eligibility and really make sure you're doing eligibility audits. That's really, really a big deal.
Common Mistakes and Best Practices
[00:20:32] Stacey Richter: Okay, so now do we have any examples of where things went wrong? And I really, actually, I would prefer not getting an outlier here, just what do you see when you onboard a new plan frequently enough relative to their stop-loss coverage or lack thereof?
[00:20:49] Jon Camire: Well, you know, I think there are the risk terms, like the contract terms, but honestly, the thing I see most often is an overly conservative point of view in terms of stop-loss.
Stop-loss is a high margin product. If your deductible is too low and you're not increasing it on a regular basis, if you just haven't marketed it and they're just taking premium increases year after year after year, we see companies that are just paying hundreds of thousands, if not millions of dollars more than what a, you know, probably market rate policy should be paid.
And as much as the contract type might create risk and there you have unbound liability potential, if you're paying a million dollars more than you should be paying year after year after year, in many cases, that's even worse.
[00:21:42] Andreas Mang: Jon just touched on something important and I got to know the CEO of one of the large stop-loss carriers pretty well, and in a, maybe in a moment of weakness, he revealed to me what the margins are, what they shot for.
And this particular company shot for 30 to 40% margins on stop-loss. And so Jon just said, it's a high margin coverage. Now I get it. They're taking out a lot of risk. I get all that, but as the employer, you need to play the game, right? Your job is to extract as much of that back as you can and try to get the best coverage at the lowest rate.
And too many companies fail to be active purchasers in this field.
[00:22:17] Stacey Richter: So, is there a way that you recommend for purchasing stop-loss insurance? So we talked about definitely the things that you wanna make sure of when you are buying stop-loss, but relative to like purchasing it from the process by which one procures the stop-loss to begin with, do you have any suggestions there?
Panel Approach to Stop-Loss Insurance
[00:22:38] Andreas Mang: Well, in our case, we actually take advantage of a panel approach. So we have a multi-insure panel who annually is competing for a very large block of overall stop-loss premium every year, and that has helped us in terms of getting the best rates possible, that ensures that every year our companies are actually going to the market, as Jon said.
And allowing competitive forces to play in your favor. And so I think that's one way to go about this as opposed to just kind of going out to the market on your own every year and hoping you do the right thing. Take advantage of volume. I think we're gonna talk about this, maybe take advantage of a collective as we do to try to allow market forces to work in your favor.
[00:23:21] Stacey Richter: So this might be our last really big piece of advice. Try to aggregate as many, as much volume as one can, such that when you go to a stop-loss carrier, you can leverage that volume of business and try to get a better rate. And you're calling that a panel approach?
[00:23:39] Jon Camire: Yeah. So, well, the panel approach, it's important that each, each individual company is individually underwritten.
But when you have 50, 60, 70, 80 companies all competing under similar terms, all competing in a dynamic where every bidding carrier knows that they're up against a lot of competition, the pencil stays sharp. The contract terms that they're bidding on are consistent. The process is consistent. The results end up being just an added efficiency, and then ultimately there's a lot more strong choices to be made.
As I said earlier, carriers are getting into the market. Carriers are getting out of the market. Some years carriers are excited about stop-loss. Some years they're not. And so by looking at a panel and getting, you know, 7, 8, 9, 10 different carriers bidding for your business, you know that what you're getting is relatively the best in the market that they have to offer.
[00:24:34] Stacey Richter: So does the panel refer to the number of employers that are ganging up together, or does the panel refer to, you're asking a lot of different stop-loss carriers, like who's the panel here?
[00:24:44] Jon Camire: In this case, it's a panel of stop-loss carriers. So in our case, we use nine or 10 carriers that all understand, hey, there's a lot of different companies here to be bid on.
If you can stick to this process, if you can bid on this contract type. If you can, you know, manage claims effectively throughout the year and work with us on that. That's our panel approach.
Final Thoughts and Wrap-Up
[00:25:08] Stacey Richter: All right, so in part one of this episode, we have talked about what stop-loss is. We've talked about these terms that wind up getting bandied about relative to stop-loss.
A lot of times we've talked about today, the advice that you have, and we just finished up here with the buying process itself, which sounds like, again, there's probably better or worse ways to do this. And I just keep thinking about what you said at the very beginning, Andreas, about making sure that the consultant knows what they're doing.
Is there anything that we neglected to talk about that we wanna bring up today?
[00:25:40] Jon Camire: The one thing I wanted to add is make sure you know what your consultant is getting paid, and if you're using some type of collective or captive or whatever, make sure you know what they're getting paid. Over the years, we've seen some, you know, questionable behavior when it comes to commissions on stop-loss because it's not an employee benefit. It's not reported on 5500s.
If you have that reputable broker, you're doing disclosures and things like that, you're probably okay. Same thing with a strong collective. Definitely know what these people are being paid on this coverage.
[00:26:16] Stacey Richter: Andreas, anything that you wanna add as a wrap up here?
[00:26:18] Andreas Mang: No, I think, I think we covered the waterfront pretty well.
This stuff is complicated. I hope it doesn't scare anyone away. I hope this helps clarify some of the important points that you need to look at, and it's just, it's a really integral, important part of the overall self-insurance equation that is too easy to sort of, view as that last buying decision that we talked about and sort of you wanna sweep it under the rug.
It's probably one of the most important buying decisions. Unfortunately, it happens at the way end of the process when everybody's really tired and beat up and you know, you gotta hang in there and get through this one and put as much into it as every other part of what, you've done to sort of structure your plan for your employees.
[00:26:55] Stacey Richter: Andreas Mang and Jon Camire, thank you so much for being on Relentless Health Value today.
[00:26:59] Andreas Mang: Happy to be here. Thanks so much for having us.
[00:27:01] Jon Camire: Thank you, Stacey.
[00:27:03] Keith Passwater: Hi, I am Keith Passwater, CEO of Havarti Risk. Relentless Health Value has consistently challenged the way I think about the business of healthcare. The conversations are smart, relevant, and grounded in the realities we face every day. If you're as passionate about driving healthcare change as I am, I really encourage you to follow Relentless Health Value on LinkedIn and join the conversation. Thanks for listening.