Having a group with a large recurring drug claim can sometimes make moving that group to a new carrier a challenge. This could limit the groups options and make it harder for them to maintain competitive rates. This may leave the group with little choice but to accept a significant renewal increase or cut back on coverage by introducing stricter maximums or switching to options such as mandatory generic substitution.

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:

• The current carrier knows they will retain an ongoing cost of the recurring drug claim. Today they retain none of the claim, so if they choose to be aggressive with their renewal pricing it will either be paid by the client, or the client will leave, taking the large claim with them. By adding in this additional ongoing cost, the current carrier will have to weigh the loss of premiums against the ongoing 50% share of the large claim. It may be better financially to keep the group at a lower premium, rather than risk losing them.
• The quoting carrier knows they will have a reduced exposure on the large recurring claim. They still have ‘skin in the game’ though, so their pricing must be reasonable and they still have to manage the plan members recurring claim appropriately to control their own exposure. Claims management would be taken over entirely by the new carrier.

High level overview of how the carriers claim split would work

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.

How multiple carrier transfers would be handled

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.