Stop Loss and Marketing

19

The source material lists 19 specific information items ideally needed for a new business stop-loss quote, ranging from employer name and SIC code through to aggregate stop-loss claim basis and benefits to be included in the aggregate.

Three times

A group that has changed carriers more than three times in the last five years will often not be quoted, as frequent carrier changes signal instability and potential adverse selection.

10%

Retirees should not comprise more than 10% of the group. Groups exceeding this threshold face restrictions because retirees tend to generate higher claim costs.

5%

COBRA participants should not comprise more than 5% of the group. COBRA individuals represent higher-risk participants since they often elect continuation coverage due to ongoing health needs.

75%

A group with less than 75% participation of those eligible for a contributory plan may not be quoted without a valid explanation. Low participation rates increase the risk of adverse selection.

50%

The employer should contribute a minimum of 50% of the cost of coverage. This threshold ensures employer commitment and helps maintain adequate plan participation.

30% of eligible employees

When HMO enrollment exceeds 30% of eligible employees, stop-loss carriers will generally decline to quote aggregate coverage because the indemnity plan is subject to adverse selection from a death spiral effect.

Five months

The most recent experience data cannot be more than five months prior to the proposed effective date. This ensures the carrier has sufficiently current data for underwriting purposes.

$12,500 or 50% of the specific deductible

For disclosure or obtaining a firm quote, stop-loss providers require detailed information on claims in excess of $12,500 or 50% of the specific deductible, including name, age, status, diagnosis, prognosis, and expected future claims.

By applying an increased specific deductible (laser) to the spouse or by increasing the plan's rates

Carriers usually accommodate employer surprises by applying a laser (increased specific deductible) to the affected individual or by increasing the plan's overall rates, rather than denying coverage for the spouse or non-accepting the group.

The right to underwrite the risk as if they had been informed or to rescind coverage

When the carrier discovers it was dealt with unfairly through non-disclosure of a known potential claim, it has the right to underwrite for the risk as if it had been informed about it, or to rescind coverage entirely.

60 to 90 days, allowing approximately 10 days for carrier quoting, plus 30 days for proposal preparation and delivery to the employer

The RFP should leave 60-90 days before renewal. Carriers typically provide preliminary quotes in 8-10 days, then the broker needs approximately 30 days to prepare and deliver the proposal to the employer. Poor timing is a common reason for rushed placements and suboptimal coverage terms.

60 to 90 days before renewal; allow 10 days for preparation and 30 days to prepare and deliver to the employer

The proposal should leave approximately 60 to 90 days before the renewal date, with 10 days allowed for preparation and 30 days to prepare and deliver to the employer.

24 hours

The carrier will notify the incumbent administrator of the appointment and allow a 24-hour period to have the administrator-of-record letter rescinded before recognizing the new administrator.

$40,000

When the specific attachment point is set at $10,000 each covered person, a family of four would have a $40,000 total attachment point ($10,000 x 4 family members).

$10,000

When the specific attachment point is set at $10,000 each covered employee, the entire family of four is treated as one unit under the employee, so the family attachment point is $10,000 regardless of family size.

15/12 or 24/12

The most common specific contract terms seen today are 15/12 or 24/12, though 12/12 contracts are seen for new accounts coming from fully insured arrangements and 12/18 are seen for level-funded cases.

Employee / Employee+Spouse / Employee+Children / Family

The standard 4-tiered structure is Employee / Employee+Spouse / Employee+Children / Family. The 3-tiered version is Employee / Employee+1 / Employee+2 or more, and 2-tiered is Employee / Family.

X(number of individuals) + 2.4(number of families) = composite factor times total individual and families

The conversion formula is X(no. of individuals) + (2.4)*(no. of families) = (composite factor)(total individual and families). The 2.4 multiplier for families reflects the higher expected claims cost for family coverage.

If the agreement definition is narrower than the plan definition, there is potential for the plan to be liable without stop-loss protection

The material explicitly warns that if the agreement definition of covered person is narrower than the plan definition, there is a potential for the plan to be liable for claims without stop-loss protection, creating a coverage gap.

The plan must be registered with the Department of Labor within 90 days of the effective date

The definition of 'plan' requires it to be written, properly executed, have all amendments included, have a copy on file with the carrier, be self-funded, and not provide coverage for carrier-excluded benefits. Registration with the DOL within 90 days is not stated as a requirement.

12 months, though agreements for periods such as 14 months are sometimes seen

The agreement year will generally be for a 12-month period, but agreements are sometimes seen for periods such as 14 months when there are special circumstances. It may or may not coincide with the plan year.

Benefits from July 1 through August 31 go to the old year; benefits from August 1 to September 1 go to the new year, with overlap in August

The material provides this exact alert: benefits for July 1 through Aug. 31 go to the old year, and benefits for Aug. 1 to Sept. 1 go to the new year. A single hospital stay can be charged to two agreement years.

Reimburse the employer or pay the reimbursement due, subject to terms, within a reasonable time after receipt of proof of loss

The insuring clause states that the carrier agrees to reimburse the employer or pay the reimbursement due, subject to terms/conditions, within a reasonable time after receipt of proof of loss, and not to exceed the agreement maximum amounts.

The lesser of the calculated point and the minimum point as set forth in the schedule of benefits

The aggregate attachment point is the lesser of the calculated point and the minimum point as set forth in the schedule of benefits. This protects the employer if enrollment drops, ensuring the attachment point decreases accordingly.

The employer, not the carrier or its underwriting manager

The agreement explicitly states that the plan supervisor is agent of the employer and not of the carrier or its underwriting manager. The carrier and its underwriting manager shall be held harmless from the plan supervisor's negligence, errors, or omissions.

Negotiate directly with healthcare providers to obtain discounted rates

The employer/plan supervisor duties include adjudicating claims, maintaining participant records, maintaining registers of amounts paid outside the plan, and making records available for audit. Negotiating provider rates is not listed as a duty under the stop-loss agreement.

Claims resulting from pre-existing conditions are excluded for the first 12 months

The limitations of coverage section lists exclusions for benefits outside the plan, law violations, legal/punitive fees, and others, but does not include a blanket 12-month pre-existing condition exclusion. The agreement's preexisting clause does not apply to takeovers where no loss/no gain rules are followed.

The date when claims exceed the aggregate attachment point

Automatic termination triggers include: expiration date, employer written request with 30-day notice, plan discontinuation, plan modification without written consent, failure to perform duties, end of grace period, and cancellation of the administrative arrangement. Claims exceeding the aggregate is not a termination trigger.

They would not be honored; benefits cease to exist upon early termination

When coverage terminates before the end of the agreement year, benefits cease to exist entirely. Any specific or aggregate extension (such as 12/15 coverage and/or disabled life coverage) would not be honored.

When paid claims pass 50% of the specific attachment point, or when it is apparent a claim to the carrier will likely occur

The carrier must be notified within 30 days of the earlier of (a) when paid claims pass the 50% of specific attachment point, or (b) when it is apparent that a claim to the carrier will occur in all likelihood.

The arbitration clause requiring disputes to be settled under the rules of the American Arbitration Association; carriers prefer it because arbitration is typically faster, less costly, and more private than litigation

Stop-loss agreements typically require disputes to be settled by the rules of the American Arbitration Association rather than through litigation. This is a significant contract provision that employers should understand before signing, as it limits their legal recourse options.

Yes, because the 31-day grace period for premium payments means coverage remained in force through March 31, and the payment was received within that window

The stop-loss agreement provides a 31-day grace period for premium payments. Coverage remains in force during this period, so a claim occurring within the grace period is covered as long as the premium is ultimately paid. The 31-day period (not 30) is a specific contractual detail.

Clerical errors do not invalidate coverage, nor do they expand the carrier's liability

The errors provision states that clerical errors do not invalidate coverage, nor do they expand the carrier's liability. This protects both parties from inadvertent mistakes in recordkeeping.

The assignment provision prohibits transferring reimbursement rights without the carrier's permission, so the employer must first obtain the carrier's written consent before any assignment takes effect

The stop-loss agreement's assignment provision requires the carrier's permission before reimbursements can be assigned to any other party. This gives the carrier control over who receives payments and prevents unauthorized redirections of funds, even to plan-related entities like trusts.

The carrier is a service provider, not a fiduciary, to the plan and is not obligated for any federal/state reports or returns

The disclaimer explicitly states that the carrier is a service provider, not a fiduciary, to the plan, and that the carrier is not obligated for any federal/state reports or returns.

The employer/plan supervisor; any expenses incurred by the carrier in such disputes shall be reimbursed to the carrier

Any plan disputes among employer, plan supervisor, and participants shall not be an expense of the carrier, and any expenses incurred by the carrier in such matters shall be reimbursed to the carrier by the employer.

Extension of coverage during a period of inactive service due to disability, layoff, or leave of absence

The plan document review section specifies that extensions of coverage during periods of inactive service due to disability, layoff, or leave of absence should be limited to six months or less.

The agreement language will prevail

The executory section states that in any agreement/document dispute, the agreement language will prevail. This is a significant point because it means the stop-loss agreement terms take precedence over the plan document.

Self-billed by the plan supervisor, tracking total participants month-to-month

Most stop-loss invoices use a self-billing method where the plan supervisor tracks total participants on a month-to-month basis, noting new and terminating participants and making adjustments.

The carrier will require review and may deny the retroactive addition, since most carriers only allow retroactive adjustments within 90 days — and 4 months exceeds that window

Most stop-loss carriers allow retroactive enrollment adjustments within 90 days without carrier review. Beyond 90 days, the carrier must approve the adjustment and may decline — especially when a large known claim is involved, as this creates adverse selection risk.

A short month billing covers June 15 to July 1, after which billings are for the first of the month

Where the plan year does not coincide with the first of the month, there must be a short month billing for the first partial month only (June 15 to July 1 in this example), after which billings proceed on the first of each month.

Some permit premiums to be reported net of commissions; others want premiums reported gross with commissions paid to the broker of record

Most carriers permit premiums to be reported as net (of commissions), while others want premiums reported as gross, with commissions paid to the broker of record separately.

$2,000

Under the pro rata method, the carrier receives 5/20 x $8,000 = $2,000, and the employer receives 15/20 x $8,000 = $6,000. This allocates the recovery proportionally based on each party's share of the total claim.

A coverage gap where the plan pays a claim for a dependent who is ill but not hospitalized, while the stop-loss does not reimburse because the dependent fails its broader functional exclusion

Different disability definitions create coverage gaps. The plan's definition (hospitalized or confined) is narrower than the stop-loss definition (unable to perform functions of a person of like age or sex). A child at home unable to attend school due to illness would be covered by the plan but excluded from stop-loss reimbursement.

The $20,000 specific stop-loss did not make the self-funded plan an insured one for regulatory purposes

The court found that $20,000 specific stop-loss did not make the self-funded plan insured because stop-loss offers protection to a plan or employer, not to individual persons. Group insurance laws required coverage to attach to persons, not employers or plans.

The stop-loss attached to participant losses rather than employer losses, and Michigan statutes required mandated benefits in any insurance purchased from a Michigan-licensed insurer

The court noted that the stop-loss attached to participant losses rather than employer losses through a high-deductible group plan, and Michigan statutes required mandated benefits in any insurance purchased from a Michigan-licensed health insurer.

The plan was ASO funded with aggregate-only stop-loss, and the aggregate limit was never reached

In Moore v. Provident, the plan was ASO funded with aggregate-only stop-loss. The court held for the plan, noting the insurer did not act as an insurer to participant claims and that the aggregate limit was never reached.

The participant was unmindful of the existence of the stop-loss coverage, and the stop-loss protected the plan, not the beneficiaries

The court noted that the participant was unmindful (unaware) of the stop-loss coverage and that stop-loss protected the plan rather than individual beneficiaries. The denied claim was for mental health, which would have been paid under state-mandated benefits if the plan were insured.

A conversion benefit was at issue; the court held that merely because the stop-loss carrier was state-regulated was not sufficient reason to believe stop-loss was a contract of insurance

Mitchell claimed the stop-loss made the plan fully insured and therefore required Wisconsin's mandated conversion benefit. The court held for the plan, noting that state regulation of the stop-loss carrier was not sufficient reason to classify stop-loss as insurance.