Medical Stop-Loss 101

Transcription

1 Medical Stop-Loss 101 March 2013

2 What Is a Self-Funded Medical Plan? A self-funded (or self-insured) medical plan is one in which the employer assumes the financial risk for providing healthcare benefits to its employees This provides an important alternative to purchasing traditional medical insurance products (fully-insured products) Self-funded employers pay for each claim as it is incurred, instead of paying a fixed premium to an insurance carrier Typically, a self-funded employer puts money (corporate and employee contributions) in a separate fund to pay claims 2

3 Why Employers Choose to Self-Fund 160 million people get their coverage through the employer-based healthcare system, including 75 million who are covered by self-funded medical plans (1) Customization employer can customize the plan to meet the specific healthcare needs of its workforce Participation employer (not the insurance company) benefits when claims experience is at or better than expected levels Consistent Regulation self-insured health plans are regulated under federal law Lower Taxes employer is not subject to state health insurance premium taxes 3 1 Self-Insurance Institute of America, Inc., February 2010.

4 Challenges Facing Self-Funded Employers Challenge Administration of the plan Access to benefit networks (hospitals, s, physicians, s, prescription drugs) Uncertain amount and timing of claims Solution Third Party Administrators (TPAs) Insurers (providers of fully insured medical products) with Administrative Services Only contracts (ASOs) Medical stop-loss insurance 4

5 Medical Stop-Loss Insurance Limits Claims Risk for Self-Funded Employers All but the very largest of self-funded employers have some level of risk that they are not comfortable keeping Employee benefit brokers bring self-funded employers to insurance carriers who offer stop-loss coverage Two types of coverage work together to protect the self-funded employer: Specific Stop-Loss protects against the severity of claims Aggregate Stop-Loss protects against the frequency of claims 5

6 Specific Stop-Loss Insurance Most stop-loss insurance is Specific stop-loss Covers a self-funded medical plan for the claims of one individual Employer can choose its deductible; the self-funded medical plan pays for claims below that deductible for each individualid The specific stop-loss deductible payable by the employer typically ranges from $25,000 to $500,000 Specific stop-loss is more expensive than Aggregate stop-loss For an employer purchasing both coverages, Specific stop-loss premium will typically make up 90-95% of the total premium 6

7 Aggregate g Stop-Loss Insurance For smaller employer groups, Specific stop-loss may not provide enough protection Aggregate stop-loss provides coverage for the employer group s total claims (minus the claims that are already covered by Specific stop-loss) The Aggregate deductible is set by the insurance company The insurance company s underwriters determine the employer group s Expected Paid Claims (EPC), then the deductible is typically set at 125% of EPC The 25% is called the margin; this margin mitigates the cost of Aggregate stop-loss insurance 7

8 Concept of Leveraged Medical Cost Inflation When medical costs rise, the stop-loss provider s costs usually go up by a higher h percentage Example (assuming $50,000 deductible for both years): 20% leveraged medical cost inflation $60K stop-loss claim in Yr 2 $50K stop-loss claim in Yr 1 le After deductib $100K medical claim in Yr 1 10% medical cost inflation After de eductible $110K medical claim in Yr 2 8

9 Impact of Federal Healthcare Reform On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law: Brings substantial change to insurance coverage for medical costs Many changes apply primarily to fully insured group health plans, but some provisions apply to self-funding Many provisions of PPACA need to be clarified and will require follow-up legislation Specifically, PPACA: Affects the market for major medical and mini-med plans Mandates elimination of certain limits and exclusions Establishes new payout standards with Medical Loss Ratio minimums Studies find that the majority of employers (74% 1 ) intend to continue to offer employee healthcare plans, despite concerns that costs will rise as a result of healthcare reform Elimination of coverage limitationsit ti Ongoing medical cost inflation Increasing costs of major medical insurance More employers to self-fund their plans and manage their risks with stop-loss insurance 9 1 Towers Watson survey, May 2010

10 Medical Stop-Loss Generated 25% of Symetra s 2012 Operating Revenues 1 ($ in millions) Other, $33 Deferred Annuities, $568 Individual Life, $450 Income Annuities, $417 Group Medical Stop-Loss, $524 (25% of Total) 10 Benefits - All Other, $78 1 Operating Revenues is a non-gaap financial measure, and its most directly comparable GAAP measure is Total Revenues. Operating Revenues is calculated as Total Revenues less net realized investment gains (losses), plus net investment gains (losses) on fixed indexed annuities.

11 Symetra s Strengths in Medical Stop-Loss We manage to the bottom line not the top line Symetra was an early entrant in the 1970s and we have been consistent in our focus for over three decades, resulting in a solid record of profitability Sales incentives are heavily leveraged on business profitability We have built solid relationships and a strong reputation with benefits brokers and employer-customers We offer a clean contract design with minimal coverage exclusions Our claims service is considered to be best in class 11

12 Excellent Track Record of Profitability Benefits Loss Ratio 70% Average: 62.7% 65% Long-term target range: 63% - 65% 60% 55% 50% 45% Benefits Loss Ratio indicates the portion of each dollar of premium that is used for policyholder claims.

13 Symetra is a registered service mark of Symetra Life Insurance Company, th Ave. NE, Suite 1200, Bellevue, WA