Captive Insurance Times, Issue 194 March 18, 2020
Phillip Giles of MSL Captive Solutions discusses how the COVID-19 pandemic could potentially affect self-funded health plans and medical stop-loss captives.
It is still quite early to ascertain, with any degree of accuracy, the effects that the coronavirus pandemic will ultimately have on US health plans.
I can, however, offer some initial observations, from my perspective, as to how the pandemic could potentially affect self-funded health plans and medical stoploss captives.
There is a significant variance in the levels of severity among those that have contracted the virus.
These range from symptoms of a cold or influenza, (requiring nothing more than home confinement), to intensive care hospitalisation for the more severe cases with advanced progression or individuals with compromised immune systems. The first scenario can be minimal in terms of cost while the latter can potentially be very expensive.
Self-funded “plans” themselves will experience a significant impact from COVID-19 as the employer (or plan sponsor) is directly responsible for all claims incurred by the plan. The degree to which the medical stop-loss coverage, including medical stop-loss risk held in a captive, is potentially impacted will be relative to the attachment level of the specific deductible covering the employer’s primary plan risk. Traditional self-funded plans have two layers; the primary “plan” layer and the medical stop-loss layer.
The plan layer assumes responsibility for all claims incurred by the participants covered under the plan.
The employer pays the claims incurred by the plan and then seeks reimbursement for any larger claims, above a predefined (specific attachment) level from its medical stop-loss carrier or captive.
The industry-wide average specific stop-loss deductible (across all selffunded plans) is approximately $95,000. Most self-funded plans, including the smallest members participating in group medical stop-loss captives, have specific deductibles above $25,000.
From what we know at this stage, this should be well above the total treatment cost of most COVID-19 claims. Most large or complex claims (that would exceed the typical specific medical stop loss deductible level of a self-funded employer plan) are more likely to come from elderly (retired) individuals, covered under Medicare, rather than from active employees covered by employee benefit healthcare plans.
Again, it is important to distinguish between the Plan layer, assumed directly by the employer, and the MSL layers, assumed by the captive and (re)insurers.
The plan will assume all claims so the effects from COVID-19 at primary coverage layer could be considerable while the impact to medical stop-loss layers (captive or (re)insurer) are likely to be much less significant.