In a market that continues to see significant growth in catastrophic claim costs, provider organizations, health maintenance organizations (HMOs) and other health plans that want to protect their bottom line from the potential financial loss associated with these often multimillion-dollar challenges should consider excess risk coverage.
What’s Creating the Coverage Need?
The most visible cost-driving issue facing the reinsurance industry today is the continued advancement of cell and gene pharmaceutical therapies, which are being rapidly created and released with the intention of potentially helping to cure cancer, blood disorders and many rare diseases. Their costs can range from $500,000 to more than $2 million per treatment, which creates financial risk.
And the pharmacy pipeline is incredible, so this cost risk is only going to increase as new treatment options hit the market. Other medical care associated with extremely high-cost claims includes neonatal intensive care unit (NICU) stays, burn treatment and transplants. Each reinsurer handles these claims in a different fashion, so care should be taken when selecting a reinsurer.
How Is Medical Reinsurance Accessed/Distributed?
For medical reinsurance, there is a small network of highly specialized brokers and consultants who act as intermediaries to bring coverage to the markets. There also are a limited number of highly specialized carriers who participate in the assumption of risk. This coverage requires highly technical underwriting and is influenced heavily by in-depth experience analysis and manual ratings that have been constructed by a few actuarial health care giants. Submissions often involve large volumes of data.
How Is Coverage Determined?
The type of coverage correlates with the purchaser and can be for any combination of commercial, Medicare or Medicaid populations.
When determining the coverage need, experienced underwriters assess the potential for catastrophic claims and their impact on the client’s balance sheet, staying out of the “working layers,” as well as helping to evaluate any requirements that certain entities may have regarding coverage. There also are start-up health care organizations that may need protection, given the assumption of risk back to providers that should be considered as well.
Structures range from global coverage with straight deductibles to very specific coverage forms and limits. Carriers can be highly creative in the use of pricing tools, such as aggregating specifics, inner aggregates and other corridor-styled risk management pricing tools.
How Do You Select the Right Carrier?
Before you can choose a carrier, it’s important to select the right broker – one who is familiar with the market, available products, risk management techniques, networks and medical management services, as they all come into play in the coverage decision. The broker should be closely attuned to who is doing the best job on a year-over-year basis and not in it for the short-term.
Be aware of AM Best ratings and scale because the size of the carrier actually does matter in terms of the ability to make good on promises. Also, be sure to scrutinize claim payment resources – the fair and reasonable interpretation of contracts and claims should be the mantra of the payer as opposed to a micromanagement approach. In the managed care business, consistency is a must. Everyone involved in the process should be seeking a long-term, mutually advantageous relationship – working well together for the best outcomes.
Information included in this article is based on HM Insurance Group internal reporting and 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.