Self-funding: Prepare for Lasers
Director of Self-Funded Practice
Weigh your options carefully when it comes to stop-loss provisions
When it comes to group health insurance plans, many companies know first hand that a self-funded approach can be an effective funding mechanism—provided they protect themselves from its inherent risks. If you happen to be one of those companies, you likely realize that self-funding can leave you more vulnerable to high-cost, catastrophic claims. But that’s exactly why you’ve sought protection in the form of stop-loss insurance. And that means you’ve done your due diligence and you’re good to go, right?
If only it were that simple.
The unpleasant—and potentially devastating—reality, one that some brokers may fail to bring up, is that the relative stability you seem to have achieved with your self-funded plan can be obliterated . . . by a laser.
The following will help you understand the risks of a laser—and hopefully get you thinking about how to better protect your company.
Stop-loss lasers 101
A “laser,” or individual-specific deductible, in the context of stop-loss insurance refers to a type of exclusion or limitation placed on a specific plan member’s individual stop-loss threshold. So even though you may have purchased stop-loss coverage to protect your medical plan from excessively high claims, stop-loss underwriters have the right to laser a claimant, specifically one with a serious, ongoing—and expensive to treat—medical condition. And that means the laser puts the cost back on you as the employer. Depending on the severity of the situation, it’s not an exaggeration to say you could be forced to drop your health plan, lay people off, or even go out of business.
To be clear, lasering is nothing new. However, it’s becoming more common due to dramatic changes in the healthcare landscape. These include the elimination of lifetime maximums, advances in medical technology, and new “specialty” medications that are incredibly effective—and extremely costly—for treating chronic conditions such as rheumatoid arthritis, hepatitis c, multiple sclerosis and certain forms of cancer.
Laser contracts: weigh your options carefully and close the gaps in your self-funded plan
Fortunately, you have options when it comes to your laser exposure. You can stay the course with a traditional right to laser contract, purchase a no new laser contract, or choose the no new laser with rate cap contract option. Which route is best for you? That’s a question you should bring up with your broker or consultant. They should be able to explore the costs associated with each option and the pros and cons of each in relation to what would work best for your company’s risk tolerance.
Is a laser always a bad thing? Not necessarily. In some situations, depending on where the carrier would like to set the laser, taking on additional laser liability (i.e., higher claims liability) is a better move than taking a higher premium increase, which sets the foundation for future premium increases.
Empower and better protect yourself
To be certain you’re doing all you can to navigate through the complexities—and the exposure—that come with the possibility of a laser, partner with a broker or consultant who specializes in this area. While you can never eliminate your risk completely, you can definitely take steps to mitigate the threat of this often overlooked and increasingly common stop-loss phenomenon.
This information was featured in a BizInsights article, published on September 27th, 2016.