Recently, an employer with approximately 3,500 employees covered by its self-funded health plan asked us to assist with two large claims that “needed to be paid by March 31.” There was urgency to this request, as it was St. Patrick’s Day and only 14 days remained in March. The first claim involved a baby born in early December who remained in the NICU from birth, and it was now March. The second involved a claimant who exceeded the $350K stop-loss deductible in 2024 but had significant claims incurred in 2024 that had not yet been paid in 2025 because the individual was still in a facility. The benefits manager admitted they were new to stop-loss and self-funded plans, having come from a fully insured background. The first place I looked was their 2024 stop-loss policy, followed by a review of their 2025 policy. Here is what I found:
- The 2024 policy was written as a 12/15 contract. The numerator refers to the number of months a claim can be incurred, while the denominator refers to the number of months the claim can be paid.
- Incurred means the date of service.
- Paid means when the carrier or TPA pays the claim.
- Since this was a calendar-year policy, the numerator means the claim needed to be incurred (have a date of service) during the 12 months of the calendar year—January 1, 2024, through December 31, 2024.
- Any claims incurred in 2024 must be paid no later than March 31, 2025, which represents the 15-month period from January 1, 2024, through March 31, 2025.
Thus, the rush to ensure those claims were paid by the carrier/TPA before March 31.
Let’s set that aside and talk about their stop-loss renewal, which became effective January 1, 2025. When this policy was renewed for 2025, it was written as 12/18.
- Numerator = 12 means the claim must be incurred in the 12-month period from January 1, 2025, through December 31, 2025.
- Denominator = 18 means the claim must be paid in the 18-month period from January 1, 2025, through June 30, 2026.
This is where you need to mind the gap.
To recap: we have a 2024 policy written as 12/15 (claims incurred in the first 12 months can be paid during 15 months). Then we have a renewal policy written as 12/18 (claims incurred in the first 12 months can be paid during 18 months). Do you see the gap yet?
Hint: it is between the numerator of the renewal policy and the denominator of the 2024 policy.
Neither the group nor the broker was aware of the gap. By having a first-year policy that must be paid by March 31, they were under pressure to have all claims paid by that date, but that is a tall order. Some hospitals do not bill for months after the dates of service. Or a claimant may still be in a facility, as in the second large claim, with no bill produced yet. Under the renewal period, everything resets on January 1, 2025, because the renewal policy is 12/18, meaning it will only consider claims incurred from January 1, 2025, through December 31, 2025.
What about the baby in the hospital who had claims incurred in December 2024 and remained in the NICU through March of the new year? The renewal policy will not count the December claims because they were incurred prior to January 1, 2025, and the original policy will not consider those December claims because no bill will be presented for payment by March 31. The result: the client is responsible for the December claims in full. Assume the NICU daily charge is $10K and the baby was an inpatient in December for 21 days. That is $210,000. They were advised by their broker not to worry about the December claims because they would not have exceeded the $350K stop-loss deductible anyway. True, they might not have exceeded the stop-loss deductible, but if the renewal policy had been written as a paid contract (also known as a gapless renewal), those claims would have carried forward and helped satisfy the 2025 specific stop-loss deductible of $350K.
What is a paid contract? Simply stated, a paid contract covers all claims paid during the policy year, regardless of the date incurred. Using the example above, if the policy had renewed as a paid contract, it might have been written as 24/18. This means claims incurred from January 1, 2024, through December 31, 2025 (24 months) can be paid from January 1, 2025, through June 30, 2026 (18 months). That provides ample time for claims to be paid in an orderly fashion. It also gives the carrier/TPA the opportunity to scrutinize large claims, apply appropriate discounts, and avoid rushing payment simply to meet a deadline. Had this group renewed as a 24/18 policy, the claims incurred in December would have been credited toward the 2025 stop-loss deductible of $350K. Instead, they are not covered under the 2025 stop-loss deductible.
The second claimant requires further explanation. They had exceptionally large claims paid in 2024 and exceeded the $350K stop-loss deductible. The TPA estimated that of the $1M+ billed claim pending, they would pay just over $200K due to negotiations and discounts. Thankfully, they committed to paying the $200K before March 31, but this created tremendous stress, from the benefits team to the finance team. Understandably so.
Minding the gap is a critical part of any stop-loss review. The concept is not complex when reduced to a numerator and a denominator. The last place you want to be is sitting with your CFO or CEO explaining why a large claim (insert your own number here) was not covered under either the prior-year or new-year stop-loss policy. All it takes is one large claim to fall through the gap. Take a few minutes today to pull out the prior-year stop-loss policy and compare it to the current one. Carefully review incurred dates and paid dates. As they say in New York: “See something, say something.” And when getting off the train or subway, mind the gap. No one wants to fall through it.
