June 2007 Public Sector Letter, "Strengthening the Safety Net: Strategies for Improving the Stop-Loss Coverage that Provides Protection from Large Claims Costs"
Public sector employers that self-fund their health plans avoid some of the charges associated with commercial insurance. In addition, they retain plan design flexibility (that would otherwise be affected by state insurance coverage mandates) and their role as claims fiduciary, giving themselves the final right of appeal for disputed claims. Perhaps the most attractive advantage of self-funding health benefits is that it enables the employer to improve cash flow when claims experience is better than insurance company premiums. Recognizing the advantages, many public sector employers self-fund their health coverage. The downside of self-funding is the assumption of two types of risk: ordinary risk and catastrophic risk. Self-funded plan sponsors can mitigate these risks by purchasing stop-loss or "medical excess" insurance, which provides protection against large claims as well as fluctuations in claims.
This Public Sector Letter provides an overview of available stop-loss coverage options, discusses strategies for avoiding potential coverage gaps and other common pitfalls, and illustrates what plan sponsors can expect from today's dynamic stop-loss market.