HMO Reinsurance &
Provider Capitation Stop-Loss Coverage

Stop Loss Reinsurance “kicks in” and picks up the tab when a claim exceeds a pre-determined amount (deductible/retention). A certain percent of health claims will be “catastrophic,” meaning a claim that requires extensive medical treatment at a very high cost. For example, burn victims, neonatal, trauma, cancer treatment, etc. By insuring against catastrophic claims, you are passing excess risk to an insurer, and protecting your company from financial hardship in the event of a catastrophic claim.

Summary of Products:

 Who Needs It: This type of insurance is a must for:

  • Any hospital or medical group that provides care for HMO members on a capitation basis. When you take in “capitated membership”, you have no control over the “quality” of the population, and you have to take the “good” with the “bad.”
  • HMOs who must protect their financial position from large catastrophe claims that may drain their assets.

 Insurable Items Include:

  • Hospital inpatient
  • Sub-Acute Care (Rehab Facility, Extended Care Facility, Skilled Nursing Facility, HHC)
  • Outpatient Facility
  • Physician Charges
  • Pharmaceuticals (not retail prescription)
  • Durable Medical Equipment
  • Transportation Expense
  • HMOs to protect their working capital from unexpected medical events.
  • Insolvency coverage for HMOs as required by the Department of Insurance
  • Out-of-Area conversion coverage for HMO members moving outside the HMO’s area
  • Coverage for members that reside outside the coverage area of the Plan.

 Pitfalls of Stop Loss Policies:

  • Stop Loss policies sometimes contain exclusions and escape clauses that could leave you without expected coverage. Therefore, you should “shop” very carefully for your stop loss reinsurance.
  • Per Diem maximums or fee schedules that do not cover your risk.
  • Deductibles set at the wrong levels that create higher premium payments and dollar trading with an insurer plus the insurer’s added administration expenses.

 Broker vs. Insurer? It is more advantageous to negotiate a stop loss reinsurance policy through a broker, rather than negotiating directly with an insurance company. Why?

  • Insurance is a business. The less claims are paid, the more profitable the insurance company will be.
  • A broker represents your interests and has extensive knowledge in negotiating with insurance underwriters to get you the best deal. He facilitates claims reimbursements making certain that reimbursements are correct. He has no conflict of interest when negotiating on your behalf.
  • Your personnel may not be specifically trained in stop loss reinsurance. It’s far better to use someone who is fully familiar with the ins and outs of this type of insurance.
  • It doesn’t cost you a penny more to use the expertise and professional services of a broker.

You can call us at (818) 541-7900 or email us at info@mcpheeassociates.com