If you are self-insured with stop-loss coverage in place, also known as Administrative Services Only (ASO), you may be considering unbundling your stop-loss (also known as “reinsurance”) from the carrier that is vertically integrating its claims operation, member services, pharmacy (more on that in another newsletter), reinsurance, and network. Why would you consider this? The first reason is purely financial. You may secure better terms for your company, including lower premiums and reduced exposure to claims. The second reason is competition and leverage. There are many reinsurance carriers and captives that would welcome the opportunity to bid on your business. The third is that stop-loss coverage is a financing tool that is largely invisible to your employees.
If you decide to carve out the reinsurance, rest assured you will be asked many questions by the reinsurer before they reimburse claims exceeding the individual stop-loss threshold. In my experience, when stop-loss remains bundled with the carrier providing the other services mentioned above, fewer questions are asked when a claim exceeds the stop-loss limit. However, once you carve out this critical component, you must ensure your eligibility processes are airtight, or you may find yourself having what we call the “kick-in-the-gut” conversation with your CFO when you have to explain that the carrier is not going to cover a claim because the individual was deemed ineligible.
How could someone be ineligible? The most common issue we see is loose internal management of leave administration. Yes, there is typically 12-week protection under FMLA, keeping benefits in place through the 84th day of leave, but what happens on the 85th day? Or the 114th day? Did you leave them on leave (pun intended) after FMLA protection expired? Do you have a formal leave policy that the carrier has reviewed, allowing uninterrupted coverage for days, weeks, or months post-FMLA? The reality is that carriers are unlikely to approve open-ended leave policies, and extending coverage indefinitely does not serve the employer’s best interests.
Today, one of the first questions asked in a stop-loss audit, often on every large claim submitted, is: “When did the employee go out on leave, and when did they return?” Second: Did you offer COBRA at the end of the 12-week FMLA period? Remember, when it comes to COBRA, you want the clock to begin exactly when it should: on the day after FMLA protections end. This does not mean the employee on extended leave must pay the full COBRA premium. Your company may choose to subsidize premiums for a defined period. That is far preferable to exposing your organization to a significant claim that is not reimbursed under the stop-loss policy. These are straightforward steps, but over the years, I have seen many companies fail to manage them to the day, only to find themselves facing an uncovered large claim reimbursement and taking that long walk into the CFO’s office to explain why.
So, what are simple actions you can take today to protect your organization? Here are three suggestions:
- If the employee is FMLA-eligible, maintain benefits for the 12-week period, but document, document, document. Track the start date, end date, and all communications in between.
- Once FMLA expires after 12 weeks, generate a COBRA notice and terminate active benefits at the end of FMLA if the employee cannot return to work. The carrier will want documentation showing the COBRA notice generation date and the first day of COBRA eligibility. Once COBRA is elected, benefits can be reinstated accordingly.
- Use a simple Excel tracking tool and ask your TPA to provide a monthly high-dollar claims forecast. This will help identify claims in the pipeline that may reach the specific stop-loss threshold. Review eligibility dates in advance so that, when the time comes, you can provide complete documentation and demonstrate that all compliance requirements were met, protecting your company’s bottom line.
We use a stop-loss tracking tool with our clients and are happy to share it with you. If you would like a copy, send me a note, and I will forward it along. Keep tracking.
