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CAPTIVES: An Ideal Place for All Types of Stop Loss 1.

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Presentation on theme: "CAPTIVES: An Ideal Place for All Types of Stop Loss 1."— Presentation transcript:

1 CAPTIVES: An Ideal Place for All Types of Stop Loss 1

2 Dan H. Carlson Marsh USA Inc. - Managing Director Gary J. Bischel Guy Carpenter - Managing Director Jay B. Waters University Hospitals - VP-Corporate Risk Management 2

3 DISCUSSION OUTLINE “Setting the Table” Dan H. Carlson Marsh “Hands-On” Experiences - Provider Excess Loss Insurance &Gary J. Bischel Employer Stop Loss CaptivesGuy Carpenter - University Hospitals, OHJay B. Waters Employer Stop Loss Captive ProgramUniversity Hospitals Summary / Questions 3

4 “SETTING THE TABLE“ Stop Loss “101“ Healthcare Reform – Evolving Risk Industry Trends / Dynamics Large Medical Claims Dan H. Carlson Marsh USA Inc. - Managing Director 4

5 STOP LOSS...a loosely used term Employer Stop Loss (ESL) For employers with a self-funded (ASO) employee benefit plan Provider Stop Loss Insurance (PSL) Provider Excess Loss Insurance (PEL) Provider Excess Insurance (PEI) For “at-risk” healthcare providers that are accepting risk through capitation, bundled payments, or global payments, plus ACOs) Health Plan (HMO) Reinsurance For reinsuring a health plan’s large catastrophic medical claims of covered members 5

6 “STOP LOSS” Typical Coverage Retention (Deductible)$100,000 - $1M or higher (annual per person) Coinsurance Payable90% or 80% (after the retention) Covered ServicesGlobal, specific services (i.e. hospital-inpatient, outpatient, professional, pharmacy, etc.) Reimbursement LevelContracted amount or amount paid Maximum Benefit$1M, $2M, $3M, $5M, $10M, or Unlimited OtherMembership size/type, utilization data, provider contracts, and claims experience 6

7 TYPES OF PATIENT “POPULATIONS” Commercial »Individual Products Including Health Insurance Co-Ops »Employee Benefit Plans (Group Insurance) Products Health Plan or Health Maintenance Organization (HMO) Point-of-Service (POS) Preferred Provider Organizations (PPO) Accountable Care Organizations (ACOs) Administrative Services Only (ASO) with Employer Stop Loss (ESL) Medicare Medicaid (AFDC/TANF, ABD, SSI, etc.) “Dual Eligibles” (Medicare and Medicaid) 7

8 HEALTHCARE REFORM Evolving Risk… Commercial Health Plans –No pre-existing conditions underwriting –Phasing in of no annual & lifetime maximums –Covering children to age 26 –Medical Loss Ratio (MLR) pressures 8

9 HEALTHCARE REFORM Evolving Risk… Medicare / Medicare Advantage –Formation of Accountable Care Organizations (ACOs) –CMS Shared-Savings Risk Pools –Reduced reimbursements –Patient Centered Medical Homes (PCMH) & Medical Neighborhoods 9

10 HEALTHCARE REFORM Evolving Risk… Medicaid Health Plans –Expanded geographies / eligibility –Dealing with significant covered population increases - Network & Administrative Adequacy Challenges !! –Long term funding given State and Federal budget constraints 10

11 INDUSTRY DYNAMICS / TRENDS Provider Contracting ACO-Type Contracts for Commercial Populations Accountable Care Organizations (ACOs) –Specific Provider Excess Loss Insurance –Aggregate Provider Excess Loss Insurance for “Pioneer” ACOs Bundled Payments (hip & knee replacements) Provider Direct Contracting with Employers Risk-Taking Specialty Providers (Cancer Treatment) Health Insurance Exchanges –Including New Health Co-Ops –BEWARE: New and Unknown Patient Populations 11

12 LARGE MEDICAL CLAIM TRENDS Beware… Continued concern over increasing FREQUENCY and SEVERITY of catastrophic claims - Neonates- Biotech cancer drugs - Hepatitis C- Hemophiliacs (blood factor) - ESRD- Organ transplants / re-transplantations Some carrier and client loss ratios are deteriorating. Healthcare providers are attempting to negotiate higher reimbursements from health plans THE RESULT: Increase in risk and the potential for market-driven increasing reinsurance premiums 12

13 STEPS LEADING TO THE CAPTIVE OPTION Premium Funding Continuum 13 Fully Insured with Experience Refund Monthly per member per month (PMPM) premium payment Premium Funding Alternatives (cash flow advantages) Retro-Claims Corridor »Shared claims risk with insurer – the “middle” layer Other »“Aggregating Specific” and “Inner-Aggregate” Use of Captive

14 CARRIER MARKET DYNAMICS GOOD NEWS Carriers are preparing for the formation of new risk-bearing entities such as ACOs, and the migration from fee-for-service to value-based “at-risk” revenue compensation models. They are more receptive to new types of risk opportunities. New carrier entrance “Direct writers” are considering expanded distribution strategies Adding staff 14

15 CARRIER MARKET DYNAMICS Is it time to consider placing this coverage in your captive? BAD NEWS Carriers are fine-tuning their risk appetite. Carriers have more selective distribution strategies (limiting insurance broker access). “Seasoned” underwriters are aware of your historical purchasing practices. Administration margins can be up to 40%! 15

16 “Hands On“ Experience Provider Excess Loss & Employer Stop Loss Captives Gary J. Bischel Guy Carpenter - Managing Director 16

17 Captive Stop Loss Programs Motivated by Historical Frustration 17 Trading dollars with their stop loss carrier and consistently finding themselves on the losing end Being restricted by provisions within the filed insurance products available to them Lacking “linkage” between finance, care management, human resources, etc. Struggling to find ways to effectively increase utilization of their captive

18 Captive Stop Loss Programs Common Objectives 18 Create a risk management scheme which provides: The ability to reap the benefits of their own success in managing claims A mechanism for which to manage the desired amount of retained exposure while at the same time controlling the reinsurance markets A reduction of frictional costs (premium tax, carrier loads, etc.) of risk transfer Introduction of uncorrelated, short-tail, 1 st party exposures which are complimentary to the captive’s portfolio.

19 Captive Stop Loss Programs Important Considerations 19 The ability to properly analyze the subject risk to: Quantify its volatility Create an optimal coverage scheme Determine appropriate captive funding levels Dictate pricing/terms to the reinsurance markets Coordination of resources to satisfy numerous interested parties Regulatory authorities Captive Boards Commitment across multiple organizations to the short term effort and long term success of the program

20 Captive Stop Loss Programs Consistent Results 20 Reduced hard dollar “all in” cost Significant (25%+) reduction in premium spend to external (re)insurer Potential for significant surplus contribution to captive Improved financial results (i.e. lower net cost of reinsurance) across continuum of loss scenarios Upside-only exposure for captive Risk corridor is often fully funded Potential to earn a positive investment return on those premiums

21 “Hands-On” Experience Employer Stop Loss Captive Program Jay B. Waters University Hospitals - VP-Corporate Risk Management 21

22 UNIVERSITY HOSPITALS Historical Information Self-Funded Employee Medical Benefit Program 25,000 Lives Third Party Administrative Services $500K per Claim Retention Employer Stop Loss Provided by Administrator Nominal Premium $2M per Claim Excess of Retention / No Aggregate No Exposure to Employer over $2.5M Lifetime Maximum Excluded Pharmaceuticals Recovered 80% of UH Costs 22

23 UNIVERSITY HOSPITALS Historical Information 2011 Formed Accountable Care Organization Covers All Employees 2011 Healthcare Reform Eliminates Lifetime Maximum Financial Exposure Excess of $2.5M Selected New Administrator Employer Stop Loss Coverage Not Offered Cost of Commercial Stop Loss Coverage Doubles Captive Asked to Evaluate Providing Coverage 23

24 UNIVERSITY HOSPITALS Evaluation – Claims History Actuarial / Consultant Review (Loss Cost Funding) Internal Claims Analysis (2009 Year ~ 1 Claim for $2.4M) Overall Favorable Loss Experience 24

25 UNIVERSITY HOSPITALS Evaluation (Continued) State of Employee Health Accountable Care Organization »Wellness Programs ~ Improving Employee Health »Oversight of Claims by UH Nurse Case Managers Anticipated Improvements in Frequency and Severity Pricing Actuarial / Consultant Review »Estimated Premium Broker Quotations »Commercial Insurer Quotations 25

26 UNIVERSITY HOSPITALS Captive Program $3M Annual Aggregate $500K Retention 15 / 12 Contract Term 100% Recovery of UH Costs Pharmaceuticals Included Commercially Comparable Coverage and Premium 26

27 UNIVERSITY HOSPITALS Captive Program Results Significant Improvement in Recovery Policy Surplus 27

28 UNIVERSITY HOSPITALS Captive Program - 2 New Policies Written in 2014 - 31,000 Lives in 2014 28

29 SUMMARY Understand your organization’s risk tolerance Know the risk that your captive will assume Engage leaders across the organization to ensure visibility, buy-in, and ultimately success Monitor the changing external healthcare environment Care management is critical 29

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