By Bill Rusteberg
Lasers have been unfairly treated and it’s time to show a little respect!
Stop-loss lasering is a common practice in mid-market self-funded health plans. Approximately 25% to 30% of self-insured employers with fewer than 500 employees have a laser.
For example, if a company buys stop-loss with a $50,000 specific deductible, the insurer might put a $100,000 laser on an individual who is projected to have claims in excess of $50,000. The employer then is required to pay claims up to $100,000 on that individual only in the event they should occur for a specified named condition.
In cases where lasers are implemented, total benefit costs usually end up being less than if the employer purchased a fully insured plan
EXAMPLE
- A group with 45 singles and 20 families, fully-insured premiums are $400 for single coverage and $1,025 for family coverage.
- 45 EO @ $400 + 20 EF @ $1,025 = $38,500 per month or $462,000 per year
- Large on-going claim is identified on renewal
- Net paid claim loss ratio <70%
FULL INSURED (Traditional Managed Care Plan)
- Medical trend = 10%
- Renewal increase = 25%
- Annual premium increase = $115,500 (100% probability)
SELF FUNDED (Reference Based Pricing Plan)
- Medical trend = 2.5%
- $100,000 laser on $50,000 specific
- Additional liability = $50,000 (60% probability)
SUMMARY
The fully-insured plan would pay 100% of the additional liability whether or not claims materialize to the extent thought possible. Underwriting profits realized in the prior year (Net <70% loss ratio) are to the sole benefit of the insurance company (winner take all).
The self-insured plan would benefit by the placement of a laser for an additional liability with a 40% statistical chance of not happening at all. Since the plan is a Reference Based Pricing Plan, chances of exceeding the specific deductible is 50% less than under a traditional PPO plan. Underwriting profits (Net <70% loss ratio in this example) accrue 100% to the benefit of the employer.
NOTE:
This is an over simplified illustration designed to give the reader fuel for thought when considering a change from fully-insured to self-funding.
Not every scenario is the same. However, it’s been our experience self-funding is a superior method of health care financing for the long term if properly structured and managed.
Financial discipline is a key ingredient never to be overlooked. The ability to plug and play plan components is essential.
Some self-funded plans have eliminated lasers by risk transfer through ACA RE.
