Archive for February 27th, 2010

Major Revelation to Be Exposed Soon

Saturday, February 27th, 2010

Student Athletic Plans – Who Wins?

Saturday, February 27th, 2010

Texas public school districts purchase limited student accident athletic insurance plans usually through a bid process. Every year districts  will receive, on average, four or five bids from interested carriers. The reason there are only four or five bids is because there are usually only four or five carriers in the market in any given year. And, these players change frequently, with some getting out and others, seeking profits, getting  in.

Student accident plans are underwritten on an excess basis, i.e, the plans provide secondary cover always. But, in Texas, with one of the nation’s highest uninsured populations, student accident plans, for all practical purposes, are primary policies. Little Johnny breaks his leg at football practice – since his parents have no health insurance at all, the limited student accident plan pays up to it’s benefit maximums and has no other insurance policy to coordinate against.

Marketing expenses for most of these plans are high. Out of every premium dollar, an accounting is established to segregate and book expenses. Administration costs run from 15-22%, agent commissions run up to 15% (split between the writing agent and the Managing General Agent and Master General Agent), and reserves account for about 22%. The balance remaining is available to pay claims.

Policies offered are two fold; a basic plan with limits of up to $25,000 per year, and umbrella cover that takes over at $25,000 and covers expenses up to a limit such as $5,000,000. This seems sufficient but a careful review of plan policy limitations may bring a better understanding of the risk to be assumed by the insured that is not covered by the policy. For example, a football player in South Texas became permanently paralyzed  two years ago – his medical care expenses exceeded $500,000 but his student accident plan paid only about $40,000 despite the fact that the policy limit was $5,000,000. His family is now suing the school district’s agent and insurance company.

Several carriers have developed their own proprietary network of physicians whom they tout provide lower than usual health care costs. This is a good marketing ploy, but in reality there are no significant savings to be realized.

Marketing of student athletic insurance is usually through selected brokers who are assigned a territory. These agents/brokers are exclusive marketers. Since there are only a few carriers in this market, these agents and brokers in essence are in a monopolistic position and their success is predisposed to a large degree.

A district’s decision to purchase student athletic insurance is always impacted by athletic directors and their coaches. Their input is important and agents and brokers know this. Thus, strong marketing efforts are directed towards these centers of influence, with hunting trips, seminars, etc., as a proven marketing ploy. There is nothing at all wrong with this, as this is a usual business practice in any business. But, for one to enter this line of business it helps to have a background in school district employment (retired football coach, ex-athletic director, etc.) and access to a nice hunting lease as well.

Texas school districts purchase fully-insured student athletic insurance cover. We know of not one district that self-funds their athletic programs. We find this curious since almost 100% of all Texas public school districts self-fund their group health plans with success (including the TRS ActivCare Plan which is self-funded).

Why don’t districts self-fund their athletic insurance as well?

There are advantages to self-funding. Premium taxes of almost 3% of premium is eliminated. Marketing fees are reduced. Reserves are held and invested by the district, earning investment income. Ability to directly contract with area physicians at lower rates provide additional savings.

There must be a reason districts do not self-fund their athletic insurance plans but do self-fund their million dollar group health plans.

Agents and brokers, who are exclusive marketers, have the most to lose if districts self fund their plans. Lucrative commissions are lost – up to 15% or more of annual premium is paid up-front to the agent every year. Why would agents and brokers want to jeopardize this income? Why would these agents advise their clients of this potential plan saving strategy? They dont.

A district should consider a self-funded approach. Specific stop loss cover can be purchased with a $25,000 retention for about $4 per participant. A third party administrator can be retain to pay claims, on a per claim basis of $10 (maybe even less than $10 per claim). Local doctors can be contracted with at Medicaid rates, a substantial claim savings to the district.

So, who wins in the current athletic insurance market in Texas? It is up to the reader to decide.

Editor’s Note: If school districts were to consider a self-funded athletic insurance program, why not form an Interlocal Agreement, band together regionally, procure stop loss, hire a plan administrator, and self-fund their student athletic insurance?