When Stop Loss Married Bundles and Gave Birth to Savings

Insurance \in-ˈshu̇r-ən(t)s
: coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril

Stop Loss Insurance
: an insurance product that protects against unpredictable, unexpected and catastrophic losses; also called excess insurance or reinsurance. Not to be confused with ordinary healthcare insurance.

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The average small company that buys health insurance will pay a premium for that coverage. In return, the insurance company will pay the healthcare costs that exceed deductibles, copays and coinsurance.  This form of insurance covers ordinary and expected occurrences of healthcare as well as unexpected care.

 

Health care is really about economics

 

Here is the economic reality of healthcare. In a given year, 5% of covered members will account for 50% of total costs, and about  50% will incur some form of healthcare expense, however small. In reality, being fully insured is pre-paying for healthcare. It’s paying for predictable, expected healthcare by forcing those costs through an insurance mechanism.

Imaging what your homeowners insurance would cost if every repair and maintenance item went into a claim. Imaging those costs if 5% of the houses in your neighborhood (1 out of 20!) burned, flooded or were devastated by  tornadoes each year. And what if 50% of the houses filed a claim for anything from tightening a faucet washer to replacing the furnace–or even having someone come out just to check up on your appliances and plumbing?

 

Many businesses self-pay for healthcare

 

Many larger companies self-fund their healthcare.  These companies pay for those predictable, expected healthcare expenses. These plans may have no insurance whatsoever but very often carry stop loss insurance to protect against catastrophic high costs for individuals or for aggregated high costs should there be multiple individual losses.

61% of workers are under coverage by company plans that are at least partially self-funded.

In this scenario, companies need to consider several factors in planning for healthcare.

First, where should they set the amount of loss they will shoulder before stop loss coverage kicks in?

Second, what ongoing high-cost individuals do they currently have under coverage?  These insurers may make coverage adjustments for individuals who have ongoing predictable expenses. Remember, stop loss is real insurance: something that protects against the unexpected.

Third, what does the company do to reduce the risks of members hitting their stop loss insurance? It makes sense to assure that ordinary scheduled healthcare procedures are priced under the amount of loss that triggers their stop loss.

This might sound complicated, but it’s not. A company with 2000 covered members can predict, for example,  paying for at least one total joint replacement and one major back surgery in a typical year. These procedures can be so expensive that they can hit stop loss insurance for companies even if everything goes well.

 

The best solution is to pay less for care and pay less for insurance

 

A solution is to think about bundling programs that have defined prices set in advance. Many stop loss carriers recognize that employers accessing favorable bundled prices are less likely to hit file stop loss claims simply because prices are known in advance and overall are significantly lower than unpredictable fee-for-service prices.

So not only do self-funded employers save on those healthcare procedures that can be scheduled, they often qualify for a break on their catastrophic stop loss insurance premiums. An employer can enjoy two benefits from knowing the prices of healthcare it’s likely to buy: better prices and lower premiums for stop loss insurance.

Great bundled prices are a perfect mate for self-funded companies that need stop loss insurance.

About Stan Schwartz MD FACP information

Over the course of my four decade career in medicine —as both a practicing physician and healthcare executive—I have come to realize that healthcare is first and foremost about patient care and outcomes.  And the practice of helping people feel their best and overcome illness, injury and disease happens everywhere from the doctor’s office to the patient’s kitchen, bathroom and bedroom.  Yet, there is another strong and demanding force at play when we administer the practice of healthcare, and that’s economics.  Cost is often the 800 lb. gorilla in the room. Too often, decisions around patient care and quality have become decision about economics. When our patients are not involved in those decisions, they may forego the very care we’ve recommended.   Check this space often because I will be writing here about the increasing collision of health care and economics.  I will look to decipher and clarify the issues and provide —at times—an alternate perspective on the issues.  At The Zero Card we work within this dynamic every day.   You could say we have a “bedside” perspective.   The Zero Card seeks to develop the easiest way to lower employer health plan costs while simultaneously improving member benefits.  The company is built on three fundamental principles: cost, quality and convenience. The Zero Card achieves its goals of lowering plan costs and improving benefits by creating a new marketplace for a vast number of procedures such as labs, diagnostic imaging and surgeries through direct contracting with providers.   You can follow me on twitter @stanschwartzmd and If you have feedback or reactions, contact me here:  sschwartz(at)thezerocard(dot)com