Industry pooling and EP3 were created to help solve this challenge, but exposure still remains for the carriers between the stop loss and when the Industry pool kicks in. There are also claims that are ineligible for Industry pooling, either due to certificate ineligibility or because of the groups funding model. Opportunities to improve transferability still remain.
The two challenges of renewal pricing and transferability are separate but inter-related. If the current carrier can be suitably incentivized to keep the group then the renewal increase won’t be as aggressive. If a new carrier has certainty that they have some protection from existing large recurring drug claims then their risk exposure is reduced, making the group more appealing and the market rates more competitive.
One way to solve both of these issues is to find a solution to tackle both problems at once. What if, for groups with drug claims over the stop loss threshold, the existing carrier continues to hold 50% of the certificates claims over the stop loss, even if the group changes carrier? This may sound a little counterintuitive, but allow us to expand:
Some ground rules would have to be established to make this system equitable. It should only apply to plan members that already had claims over the stop loss threshold upon carrier transfer, and the 50% share should only apply to the claims above the stop loss threshold. This is because the claims below the stop loss are supposed to be factored into the clients experience, so including this amount would in effect be charging for it twice. If the two carriers have different stop loss thresholds then the higher amount should be used by the current carrier, with the new carrier paying for 100% of the difference. This is due to the fact that Carrier A shouldn’t be exposed to more risk because the new carrier has a lower stop loss.
If the group later moves to a third carrier, any recurring claims, either already being split or new ones, should now be split between the second and third carriers.
Some other factors would have to be ironed out amongst all the carriers. Should this be a time-boxed arrangement (ie, the first year, or maybe the first two years?) The longer this applies for, the more incentivized both carriers are. What if the plan members claim increases considerably, should that still be covered 50/50? Is 50/50 the correct split, or should it be weighted more towards the new carrier, for example 40/60?
Note that this proposal isn’t intended to replace the Industry pool, rather it compliments it. This solution doesn’t do anything to help carriers with groups that have large recurring claims and aren’t moving, the carrier is still left holding 100% of the large claim, which is something the industry pool is very good at solving for. Just like industry pooling this whole mechanism should be invisible to the client, it is just another form of reinsurance, albeit between the carriers themselves. We should also highlight that there are benefits to carriers with these proposed changes as it creates more opportunities to gain new customers, even when large recurring claims are present.
That’s our thoughts on the matter, we’d love to hear what you think, either on this proposed solution or if you have suggestions of your own to help improve transferability for groups with large recurring claims.
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