Dealing with costly claims? Find the right excess risk coverage

Provider organizations, HMOs and other health plans are experiencing dramatic growth in catastrophic loss costs.

With this risk comes the potential for financial loss and volatility in their businesses. In the face of these multi-million dollar challenges, purchasing excess risk coverage becomes an important business decision. And it’s critical that these organizations find the right carrier if they want help protecting their bottom line.

Protect against the growing trend of high cost claims
With price tags typically exceeding $ 1 million, pharmaceutical advancements such as cell and gene therapies continue to be a major driver of rising claims costs. That said, as treatment capabilities evolve, the options for patients – and the claims costs created – are only expected to increase, making it essential to guard against these risks. Especially now, with an incredible pipeline of expensive treatments approaching FDA approval.

And it’s not just the costs of pharmaceutical treatments that are creating this trend. Other medical care is associated with extremely costly claims, including premature deliveries and accompanying stays in a neonatal intensive care unit (NICU), transplants, complex cancer cases and treatment of burns. Each has the potential to create incredibly large claims that can arise and accumulate in unexpected ways.

Determination of protection needs
To help manage these rising costs, financial protection is available. Healthcare entities may consider healthcare plan reinsurance or provider excess loss insurance to protect them from the financial risks associated with high cost claims. The experienced underwriters of a quality carrier will work closely with your broker to help you determine coverage needs by assessing the potential for catastrophic losses and their impact on 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 comprehensive coverage with fixed deductibles to very specific forms and limits of coverage. Carriers need to be very creative in the use of pricing tools, such as aggregation of specifics, internal aggregates and other corridor-type risk management pricing tools. It is also important to see the implementation of a multidisciplinary approach to cost management that involves specialized services and solutions to common challenges.

Find the right coverage
When trying to find the right coverage for their needs, healthcare organizations should first select a consultant or broker who knows the market, available products, networks, medical management services and risk management techniques, as each of them will take into account the hedging decision. The broker should also work with a carrier that has a history of positive year-over-year performance – not just short-term interests. There are only a few highly specialized carriers in this space, mainly because it requires extremely technical underwriting, is heavily influenced by in-depth analysis of experience, and often involves working with a significant amount of data.

Be aware of the essentials
There are some key attributes to consider when selecting the right carrier. First, it is important that the carrier is rated well by AM Best and has a good scale, as financial protection should only be provided by a financially secure and stable organization. Also make sure you know who ultimately makes the decision to pay larger-than-normal claims: does it go to a third party or does it stay with the underwriting entity? The carrier must also be attentive to trends so that the coverage they offer is designed to meet the challenges of changes and market needs. And don’t forget to take a close look at their claims payment resources – the fair and reasonable interpretation of contracts and claims should be at the heart of the payer’s approach instead of using a micromanaged style.

Finally, consistency is a must in the managed care industry. When all parties are looking for a long-term mutually beneficial relationship, everyone – broker, customer, and carrier – will work well together to achieve the best results.

The information in this article is based on internal experiences of HM Insurance Group, as well as general industry knowledge.

With over 30 years of experience, Adam Gottesman serves as the Director of Managed Care Reinsurance Sales for HM Insurance Group.

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