Stop Loss and Marketing

A monthly-determined aggregate-only stop-loss administered by Metropolitan as ASO, and the participant sought a medical conversion benefit

The plan was ASO-administered by Metropolitan with a monthly-determined aggregate-only stop-loss. Rasmussen sought a medical conversion benefit as a state-mandated benefit. The court noted the trigger point was never reached and stop-loss covered the plan/employer, not the participant.

Stop-loss from a high-deductible group plan

Bone wanted state-type punitive damages and claimed stop-loss made the plan fully insured. The court noted the true nature of stop-loss protecting the plan/employer and carefully distinguished stop-loss from a high-deductible group plan.

Every day, in every way, be totally fair to all parties to the arrangement, never favoring one over the other

The best rule states that agent/broker, TPA, and stop-loss provider should consider themselves part of the team working for the employer group. The TPA should be totally fair to all parties -- employer, carrier, providers, and participants -- never favoring one over the other.

When there is no broker on the case and the payment is more of a service fee for handling the plan than a commission for bringing the plan to the carrier

Where a carrier pays a commission on stop-loss accepted by the TPA because there is no broker on the case, such acceptance will likely not make the TPA an agent because the payment is more a service fee for handling the plan than a commission for bringing the plan as an agent.

Property and casualty insurers were relinquishing underwriting duties to managing general agents, reinsurance intermediaries, and facilitators of risk placement

Property and casualty insurers began fronting arrangements by relinquishing underwriting duties to managing general agents, reinsurance intermediaries, and facilitators of risk placement. Insurance commissioners became alarmed at such arrangements defined as reinsurance transactions.

When participant contributions are used to pay stop-loss premiums

If participant contributions are used to pay stop-loss premiums, the stop-loss agreement becomes a plan asset. The DOL would consider it a prohibited transaction if the stop-loss agreement were not treated as a plan asset when funded by participant contributions.

The employer is free to use the stop-loss reimbursements as it chooses, not necessarily for plan benefits

When the stop-loss policy is not paid by participant contributions and is held in the employer's name, the employer is free to use stop-loss reimbursements as it chooses. The DOL's concern about plan asset status only arises when participant contributions fund the premiums.

Pro rata, which splits the recovery in an equitable manner

The pro rata method is the majority practice for subrogation recovery. It splits the recovery in an equitable manner. The full recovery method (minority practice) requires that the last who paid is the first to be repaid.

The share of recovery claimed by the stop-loss carrier will always be less with the pro rata method than with the full recovery method

The text explicitly states that the share of recovery claimed by the stop-loss carrier will always be less with the pro rata method than with the full recovery method. Under full recovery, the last who paid is first to be repaid, benefiting the carrier.

The last who paid is the first to be repaid

Under the full recovery method, the last who paid is the first to be repaid. Since the stop-loss carrier typically pays after the plan, the carrier would be repaid first from subrogation recoveries, up to the amount it paid.

A hospital generally cannot sue the stop-loss carrier directly and bypass the plan

The prevalence of reported cases indicates that a hospital cannot sue the stop-loss carrier directly and bypass the plan. However, some state laws specifically allow a provider-assignee to directly sue the stop-loss carrier.

No, but participants may attack the carrier claiming reasonable expectation of coverage or policy ambiguity

The answer is no -- the stop-loss carrier does not assume the employer's liability. However, participants may attack the carrier on bases such as reasonable expectation of coverage, discovery of ambiguity in the policy, or critical policy terms like 'collectible' and 'amount recoverable.'

The obviously low level of stop-loss premiums, which should obviate any suggestions that extended coverage is contemplated

The text states that the strongest argument against drop-down coverage is the obviously low level of stop-loss premiums, which should obviate any suggestions that extended coverage is ever to be contemplated.

Nasello v. Transit Casualty Co.

Nasello v. Transit Casualty Co. was one of three cases listed where drop-down liability was required by the court. The other two were Northmeadow Tennis Club v. Northeastern Fire Ins. Co. and Lechner v. Scarrer.

The stop-loss carrier did not have a cause of action against the employer

The later court decision held that the stop-loss carrier did NOT have a cause of action against the employer for settling a claim below the specific attachment point in a manner not in good faith. The earlier decision had held the opposite.

The carrier could rescind only the most recent year, not the first three years, because its broker could have determined the data were faulty

The court permitted the carrier to rescind only the most recent year, reasoning that the carrier's broker could have determined the data were faulty and advised the carrier. Both the employer and the broker were guilty of a breach of duty to supply data with reasonable care.

A contract of direct insurance or a contract of reinsurance

The core question is whether the stop-loss will be deemed a contract of direct insurance or a contract of reinsurance. This distinction determines whether state life/health guaranty fund coverage will be available.

A contract of reinsurance, meaning the plan will be in jeopardy if the carrier fails since no contributions were made to the state guaranty fund

If the agreement is clearly reimbursement-based and the specific is very high relative to participants, courts will tend to hold it as reinsurance. Since no contributions were made to the state guaranty fund, the carrier's failure will leave the plan in jeopardy.

Reinsurance, Blue Cross/Blue Shield plans, HMOs, and fraternals

Entities not covered by guaranty funds include reinsurance, Blue Cross/Blue Shield (or similar prepaid plans), HMOs, fraternals, mutual assessment companies, reciprocals, mandatory state pools, insurance exchanges, guaranteed investment contracts, and policyholder-assumed risks.

Minimum premium plans over the trigger point

Minimum premium plans over the trigger point are generally covered by life/health guaranty funds. Minimum premium plans below the trigger point fall under policyholder-assumed risks and are NOT covered.

Merge the insolvent insurer with a solvent carrier

The three liquidation strategies are to conserve (continue operation with surveillance), rehabilitate (continue with greatly modified operations), or shut down. Merging with another carrier is not listed as one of these regulatory actions.

$200,000, covering life, health, and annuity benefits as a combined maximum

With rare exceptions, the maximum paid by the life/health guaranty fund to any individual policyholder or certificate holder is $200,000. This covers life, health, and annuity benefits as a combined maximum.

Through assessments against the state's association members, which are licensed insurers

To gain funds to fulfill the failed insurer's obligations, assessments are made against the state's association members. Any insurer licensed to sell life or health insurance must be a member of the guaranty association.

The TPA should be under a joint contractual obligation to both the stop-loss carrier and the employer, not merely having ministerial duties

The text suggests that the TPA should not have mere ministerial duties but should be under a joint contractual obligation to both the stop-loss carrier and the employer, with the stop-loss agreement explicitly requiring the highest level of good faith and fair dealing.

Self-funded plans are created, not sold; the skills of the consultant and risk manager are paramount while salesperson skills are minimal

In marketing self-funded plans, consultant and risk manager skills are paramount while salesperson skills are minimal. Self-funded plans are created, not sold -- they are marketed as an idea and a change in traditional funding methods, not as a product.

It reflects that the plan supervisor's activities are purely administrative, casting it as a professional administrator like a corporate attorney or tax accountant

A plan supervisor with no marketing expense is viewed favorably because its activities are administrative only. This casts it as a professional administrator, similar to a corporate attorney or tax accountant, whose marketing is limited to its shingle or online advertisement.

The DOL would criticize any plan fiduciary that permitted funds to be used in an arrangement that was not arm's length or not awarded by competitive bidding

While over-shopping creates practical difficulties like multiple submissions and underwriter skepticism, the DOL would criticize any plan fiduciary that permitted funds to be used in a non-arm's-length arrangement. The plan fiduciary must periodically shop the plan in the marketplace.

Broker and Consultant

While the full list includes agent, broker, consultant, and risk manager, the text pares it to broker and consultant. The agent's role is limited because agents typically work for one carrier, and the consultant and risk manager roles are deemed functionally identical.

To serve with objectivity and complete loyalty the interests of the client alone, rendering information, counsel, and service that best serves the client's insurance needs

Under NAIC model legislation, a consultant is obligated to serve with objectivity and complete loyalty the interests of the client alone, rendering information, counsel, and service that in good faith best serves the client's insurance needs and interests.

The consultant becomes the agent on the stop-loss, and the consultant's knowledge becomes the carrier's knowledge

When a consultant becomes dominant in arranging stop-loss, the consultant becomes the agent on the stop-loss. Legally, the consultant's knowledge then becomes the carrier's knowledge -- a fact that should be taken seriously by all parties.

A harmonizing agreement between the consultant and plan supervisor that outlines in detail how each is to conduct themselves, preventing conflicts between their respective agreements with the employer

The third agreement harmonizes the consultant's agreement and the plan supervisor/employer administrative agreement. It must outline in detail how the consultant and plan supervisor are to conduct themselves and is a personal agreement between them, likely with employer input.

Mildly negative, especially for smaller plans, because the broker's role is less dominant and total compensation tends to be less

The typical broker attitude has been mildly negative, especially for smaller plans, because the broker's role is less dominant, total compensation tends to be less (due to reduced contingent compensation), and the broker may be expected to know and do more.

Being qualitative in all the sub-skills required (consulting, risk management, administration, compliance) is often too much for the average broker, creating competency gaps

While the fee-based consultant/risk manager role is tempting (brokers often make more than with commissions alone), the course identifies that being qualitative in all required sub-skills is a massive undertaking that is often too much for the average broker.

Yes, new regulatory disclosure requirements mandate that the TPA disclose all compensation received from any source in the course of providing services to the plan

New regulatory disclosure requirements mandate that the TPA disclose all compensation received from any source in the course of providing services to the plan. The plan supervisor cannot be an ERISA co-fiduciary and agent simultaneously without full disclosure.

Every two to three years

The text recommends that unless there is an unexpected or unreasonable change in stop-loss program terms, the stop-loss coverage should be marketed every two to three years. Annual shopping has significant drawbacks including carrier fatigue and coverage gaps.

Annual shopping leads to higher TPA administrative fees due to frequent carrier transitions

The text lists several drawbacks of annual shopping including coverage gaps, claims disputes, reputation damage, and rate convergence. Higher TPA fees due to transitions is not specifically listed as a drawback.

Being qualitative in all sub-skills required is often too much for the average broker

While the fee approach is tempting because brokers often make more than with commissions, the challenge is that being qualitative in all required sub-skills (consulting, risk management, administration) is huge and often too much for the average broker.

Plan benefits, demographics, industry, trending, claims experience, and administrative factors

The six underwriting factors are: (1) plan benefits, (2) demographics, (3) industry, (4) trending, (5) claims experience, and (6) administrative factors. Each affects the financial condition of the plan from both the employer's and carrier's perspectives.

A claim that exceeded 50% of the specific deductible, or $20,000 if less

A shock claim is one that exceeded 50% of the specific deductible, or $20,000 if less. A separate supportive page showing shock claims should be attached to the underwriting submission along with trigger diagnosis reports.

The plan supervisor remits net of commissions to the stop-loss carrier and makes a separate commission agreement with the outside broker, speeding up the commission process

The plan supervisor names itself as broker to remit net of commissions to the stop-loss carrier. This permits the plan supervisor to make a commission agreement with the broker independently. This arrangement speeds up the commission process and enhances the attractiveness of self-funded plans.