Stop-Loss Insurance, Explained

For this Cancer Care Business Breakthroughs installment, John Hennessy, MBA, Valuate Health Consultancy, gives an overview of stop-loss or provider-excess insurance: what it is, why more oncology providers are considering it, and the pros and cons.

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Transcript:

John Hennessy: Hi, I'm John Hennessy. I'm a principal at Valuate Health Consultancy, and what we do here is make sure that patients can access the medicines they need.

So, what is provider excess? And we think about stop loss a lot from an employer standpoint or from a health plan standpoint. Those health plans for employers are bearing risk for insuring a population, for the health care needs that they have. And that's a traditional vision of these things. And for a lot of those folks, they want to make sure that they can control that risk. And one way that they do that is to pass some of that risk on to someone else. And we call that a stop-loss carrier, or an excess-loss carrier. And what they do is ask that excess-loss carrier to say, “Hey, if things don't go as planned, can you offer us some protection?”

And so, as providers get into the business of bearing risk, whether it's on a case rate, whether it's global capitation, or even within risk quarters, they have the same challenge, right? They want to make sure that they're protected from extreme risks—either extreme cases for one patient or just an expense that well exceeds budget. And so, provider excess essentially is a tool that allows you to make sure that you are not put in a position to put your organization at risk when you're taking risk-based contracts.

How does stop loss help providers? Well, let's say that I've made a decision that I'm going to work with a Medicare Advantage plan. And they say to me, you know, “John and John's Backyard Barbecue and Medical School or Academic Medical Center, we'd love to have you be a risk partner in managing this Medicare Advantage population.” And they say, “Listen, there's $100, and we're going to keep $15 to do the marketing, administration, pay claims, things like that. But the other $85 is yours, and we want you to do the best possible work you can do to manage the care of these patients.” And I might decide that's a really good choice. I would rather make those decisions myself as a provider organization than have a health plan or someone else make those decisions for me.

So, I take those $85 and I'm going to use them to cover the costs of the folks in my health plan. But every so often we have a patient who gets really, really sick. And in health plans, it could be to be a cancer diagnosis, or a rare disease, or neonatal care. And what I might do is say, rather than being at risk for the entirety of that case, I want to have someone help me out with that. And that's what provider excess can do; it can keep you from experiencing sort of the extreme ends of underwriting risk. Whether that's one patient—specific stop loss—or aggregate stop loss, that the total cost of care for my population got more than I expected. And the more you're working with subpopulations, the more this matters. So, if I'm working for a subpopulation in the South, and maybe there's a big, you know, act of God, that that incurs a lot of costs, I want some help with that, because that's a subpopulation that maybe isn't something I can manage on my own.

It's worth noting that back when I was working in the health plan side, that if you had about 100,000 members at risk, you had about a 4% chance of being at the high level of risk or at the low level of risk. And for a lot of these plans, that's kind of the margin that's built into it. So, I really don't have a lot of room to bear more risk than that. So, having a stop-loss partner allows me to say, “I can't do any worse than this,” and, in some cases, “I can't do any better than this, but I'd rather be in the middle than too far on one side or the other.”

So, if you're looking at provider excess insurance or provider stop-loss insurance, you're going to hear terms that we're familiar with, but they mattered to you in this particular area. So, you're going to hear about a deductible: A level of cost below which you, as the provider, are responsible for the 100% of the costs. You'll hear about things like coinsurance, which for a specific stop-loss claim that may exceed that deductible amount, the provider will still have some level of risk. So, there's a sharing of risk at a certain point. You'll hear of things like claims periods, which is the time from which the claims can start and the time from which the claims can end from a date of service. But you'll also hear about the time you have to actually submit the claim.

So, one of the things that people sometimes have is what's called a 12-12 policy, 12 months of claims experience, but you only have 12 months to file the claim. You might say, “I don't know if I can get all my claims done that quickly, so I'll go for a 12-18 or a 12-24 policy,” which says, I have 12 months of claims experience by date of service, but I have up to 18 months or 24 months to actually submit those claims for reimbursement. That costs a little bit more, but it buys you a little bit more flexibility to ensure that all the costs you experience are actually covered by this reinsurance.

The other thing to remember is that there's underwriting done here, and in the ACA era we've sort of forgotten that medical underwriting still happens. But the folks who are offering this coverage will look at the population you intend to cover; they'll look at the risks you have accepted and say, “Based on our underwriting, we think this is how we can help you manage your risk, and this is what's going to cost to do that.” And in the provider stop-loss side, we typically see this in a per-member per-month rate. On the employer side, it's usually per-employee per-month because of the way we count this stuff. But sometimes it can be a percent of premium or other metrics like that.

So, you have to kind of get used to sort of new language when you're doing this, and we talked earlier about this idea of specific coverage, reinsurance for one patient that might have extreme experience versus aggregate coverage, which is basically saying, limiting your total loss or your total potential loss on a book of business to a certain cap, and then someone, the reinsurer, covers costs in addition to that. Depending on your business, you might prefer one or the other, or sometimes both.

So, why you're talking to someone about provider excess insurance or provider stop-loss insurance is really, it's the same thing we do when we insure our car. At some point you feel you have the capability on your own to bear an amount of risk, and it's particularly risk that you, as a provider, can manage.

And we think of things like helping patients make good decisions or making sure that our primary offices are available after hours so patients don't have to go to the emergency room. Things like this are risks that we can manage, and those are things we probably shouldn't be looking to a stop-loss carrier for help.

But what sort of things can’t we manage? Well, we can't manage the likelihood that instead of the actuarial assumption that we'll have 3 multiple myeloma patients, we wind up with 10. That would be a perfectly good example where I'd want someone to help me bear risks that I can't manage. Or we might find out that, as we have a lot of rare diseases out there, that suddenly a rare disease offers an opportunity for someone to have a therapy that's wonderful for them but very expensive for me. That's something that's beyond my control, so I might want to have some risk mitigation for that.

But part of it is, you know, what are my reserves like? How much can I bear a loss on my own versus needing somebody else to step in and help me with that. And different organizations may have different approaches. Not-for-profit corporations that have a large reserve fund might be much less likely to look for provider excess than maybe a physician-owned organization that really doesn't retain earnings. And so they really don't have this big bucket from which to manage those risks. So, they look for some more outside help for this.

It may also depend on the type of risk I'm bearing. If I'm bearing risk on a case rate, I really do have a relative limit on how much risk I'm taking. But if I'm taking risk on a broad population or in a population with a relatively narrow list of indications, I might have greater risk or less risk. Those things are going to influence my decision making as well.

What's really interesting about the provider excess space is that the opportunity for providers to engage in risk-based contracting is almost going faster than the stop-loss carriers’ ability to understand the risks that providers are taking and how to mitigate those risks best. So, I think it's a very fluid marketplace. When I started in health care in 19giggity, we used to have provider excess for capitation contracts that were about big populations of patients. Now, we're looking at case rates, and we're looking at the Enhancing Oncology Model and other types of risks that providers are taking on, and I think what we ought to expect is that as the risks that are being accepted change, so is the approach that provider-excess carriers will offer. But I think they play a really important role in giving providers the opportunity to enter into these contracts and really deliver high-quality care and be incentivized in a way that that rewards them for the extra work you do to make sure patients have great outcomes.