We recently aquired a new client in Texas that is self-funded. Our task is to evaluate the current plan and make recommendations.
The current TPA is Texas based, but relatively unknown. The stop loss contract in force is between the employer and the carrier but was brokered by the TPA several years ago.
In reviewing the existing program, we asked for the carrier’s underwriter notes from the TPA. The TPA refused to release the underwriter notes, as well as refused to disclose the name and telephone number of the underwriter handling this case. We found this suspicious and unprecedented. Certainly, the employer has a right to this information. The TPA was, after all, not a party to the stop loss contract. They simply acted as an insurance broker in placing the cover.
Usually, when a TPA, carrier or insurance agent refuses to give you information proprietary to you, then you are probably paying too much. At least that has been our experience gleaned over the past 35 years in the business.
So, we wondered, what was the TPA hiding?
We compared the Stop Loss Contract rates to the rates being billed by the TPA on behalf of the stop loss carrier. They did not match. We reviewed the loss runs produced by the TPA and noticed that the contract type on the worksheets indicated, in tiny print, that the specific contract was an aggregating specific. So we went back to the actual Stop Loss Contract and noticed that under Options, the box next to the Aggregating Specific Option was not marked, but next to it in the margin it was, or so it seemed. Then, we discovered that on the past four renewals, the Stop Loss Contract was renewed on a 12/12 basis each year. That is unusual and could put the employer at risk every renewal (but save the stop loss carrier added exposure therefore better chance for profits).
So, we employed Molly Mulebriar, investigative reporterette, to check into this. Her initial report is below:
“Bill, did some quick checking this morning over a bloody mary at Star Bucks. I checked the Security & Exchange Commission (SEC) 10k report for XXXXXXXX XXXXXXXXX XXXXXXX (name of stop loss carrier) through 12/31/2009 and found that there is a marketing agreement between them and XXXXXXXXX XXXXXX XXXXXX (TPA) that expires 12/31/2014. Among other things, in exchange for $2.5 million the carrier shares underwriting profits and losses with the TPA of 35%, with bonus compensation payable annually based on a formula of profit/loss ratio of the entire block of business generated by the TPA.”
“I also found out that in 2007 the TPA got into a tift with a mutual insurance company, a nasty lawsuit was filed, and the carrier pulled all their business from the TPA and sued for repayment of a promissory note totaling about $4 million. So it seems, according to the SEC 10 k report referenced above, that the TPA moved their block of businss to the new carrier and negotiated a profit and loss sharing arrangement to “sweeten the offer.”
“I also found that about the same year, the Texas Department of Insurance issued a Commissioners Order against the TPA including a fine of over $150,000. Seems there was some sort of scheme in play to stiff the Texas Risk Pool to the tune of over $12 million by siphoning off poor risks within an employer group to the small group fully insured market.”
“This is amazing stuff. Will continue to investigate. When are you going to pay me for my time and efforts on this?”
Editor’s Note: We hesitated to put this story on our blog since there is definitly more to learn here. But to molify Molly, we felt the urgency of reporting this to our three regular readers. More to follow, with actual name of the TPA and a copy of the Commissioners Orders to be posted. Regarding Mulebriar’s quest for compensation – she is on a retainer, rather sizable. We have to continuously remind her of that.