Provider organizations, HMOs and other health plans are encountering considerable growth in catastrophic claim costs.
With that risk comes the potential for financial loss and volatility in their businesses. When confronting these multimillion-dollar challenges, purchasing excess risk coverage becomes an important business decision. And it’s vital these organizations find the right carrier if they want help protecting their bottom line.
Protecting Against the Growing High-Cost Claims Trend
With price tags commonly exceeding $1 million, pharmaceutical advancements like cell and gene therapies continue to be a major factor in claim cost growth. That said, as treatment capabilities evolve, the options for patients – and the claim costs created – are only expected to grow, making it essential to safeguard against these risks. Especially now, with an incredible pipeline of high-cost treatments moving closer to FDA approval.
And it’s not just pharmaceutical therapy costs creating this trend. Other medical care is associated with extremely high-cost claims, including preterm births and the accompanying stays in a neonatal intensive care unit (NICU), transplants, complex cancer cases and burn treatment. Each has the potential to create incredibly large claims that can arise and accumulate unexpectedly.
Determining Protection Needs
To assist with the management of these growing costs, financial protection is available. Health care entities can consider Health Plan Reinsurance or Provider Excess Loss Insurance to help protect them from the financial risks associated with high-cost claims. Experienced underwriters at a quality carrier will work closely with your broker to help determine coverage needs by assessing the potential for catastrophic claims and how they might impact the client’s balance sheet. The type of coverage will then correlate with the purchaser and can be for any combination of commercial, Medicare or Medicaid populations.
In addition, structures can range from global coverage with straight deductibles to very specific coverage forms and limits. Carriers need to be highly creative in the use of pricing tools, such as aggregating specifics, inner aggregates and other corridor-styled risk management pricing tools. It’s also important to see the implementation of a multidisciplined approach to cost management that involves specialty services and solutions for common challenges.
Finding The Right Coverage
When working to find the right coverage for their needs, health care organizations should first select a consultant or broker who has familiarity with the market, the available products, networks, medical management services and risk management techniques, as each of these will factor into the coverage decision. The broker also should be working with a carrier that has a record of positive year-over-year performance – not just short-term interest. There are just a few highly specialized carriers in this space, primarily because it requires exceedingly technical underwriting, is influenced heavily by in-depth experience analysis and often involves working with a significant amount of data.
Being Aware of Essentials
There are some key attributes to consider when selecting the right carrier. First, it’s important that the carrier be rated well by AM Best and have good scale, as financial protection should only be provided by a financially secure and stable organization. Also, be sure to find out who is ultimately making the decision to pay larger than normal claims – does it revert to a third party, or does it stay with the underwriting entity? The carrier also should have a watchful eye on trends so that the coverage it offers is designed to meet the challenges of market changes and needs. And don’t forget to take a close look at their claim payment resources – the fair and reasonable interpretation of contracts and claims should be central to the payer’s approach instead of the use of a micromanaged style.
Finally, consistency is a must in the managed care business. When all parties seek a mutually advantageous relationship for the long-term, everyone – broker, client and carrier – will work well together for the best outcomes.
Information included in this article is based on HM Insurance Group internal experiences, as well as general industry knowledge.
With more than 30 years of experience, Adam Gottesman serves as HM Insurance Group's Director of Managed Care Reinsurance Sales.