Actuarial Notes

The Role of the Actuary in Self-Insurance

By Self-Insurance Task Force · Society of Actuaries · 2018

Study guide: Exam GH-101

A monograph, published by the Society of Actuaries in May 2018, presenting the work of the Self-Insurance Task Force formed in early 2017 for a strategic initiative of the SOA Health Section Council. Its goal is to explain the many ways in which actuaries are or could be involved in the self-insured employer health plan marketplace today and in the future.

On the syllabus

  • Exam GH-101 — Outcomes 3a, 3d; Sections 4, 5 and the Appendices, excluding 4.1.1-4.1.5, 4.4, 4.6.1-4.6.3 and Appendix D.

1 Acknowledgments

2 Background and Scope

  • 2.1 Motivation for Report
  • 2.2 Scope

3 Terminology

  • 3.1 Need for Clarity

4 Employee Benefit Plan

  • 4.1 Regulation of Employee Benefit Plans
    • 4.1.1 Early Regulations
    • 4.1.2 Employee Retirement Income Security Act of 1974
    • 4.1.3 Post-ERISA Regulations
    • 4.1.4 The Affordable Care Act of 2010 (ACA)
    • 4.1.5 Regulation of Non-ERISA Plans
    • 4.1.6 Stop-Loss Insurance Regulations
  • 4.2 Key Differences Between Fully Insured and Self-Insured Plans
  • 4.3 Advising Plan Sponsors Whether or Not to Self-Insure
    • 4.3.1 Advantages of Self-Insurance
    • 4.3.2 Disadvantages of Self-Insurance
  • 4.4 Your Client Decided to Self-Insure. Now What?
    • 4.4.1 Selecting a TPA
    • 4.4.2 Determining How and How Much to Pay Providers
      • 4.4.2.1 Conventional Network Contracts
      • 4.4.2.2 Reference-Based Pricing, No Network Contract
      • 4.4.2.3 Specialty Networks
      • 4.4.2.4 Fully Insured Carve-Outs and Specialty Networks
    • 4.4.3 Selecting a Third-Party Pharmacy Benefit Manager
  • 4.5 Self-Insured Cash Flow
    • 4.5.1 Lag Between Incurred and Paid Claims
    • 4.5.2 Flow of Funds
  • 4.6 Self-Insured Plan Management
    • 4.6.1 Managing Costs Through Plan Design
    • 4.6.2 Managing Costs Through Medical Management
    • 4.6.3 Contribution Strategy
    • 4.6.4 Budgeting and Reserving Considerations
      • 4.6.4.1 Budgeting For and Projecting Claims
      • 4.6.4.2 Reserving for Outstanding Liabilities
    • 4.6.5 Risk Mitigation and Risk Transfer
      • 4.6.5.1 Benefit Plan Design
      • 4.6.5.2 Understanding the Financial Risks
      • 4.6.5.3 Risk Transfer Through Use of Stop-Loss Insurance
  • 4.7 Other Actuarial Support for the Self-Insured Plan
    • 4.7.1 COBRA and COBRA “Premiums”
    • 4.7.2 Determining the ACA Minimum Value for Self-Insured Plans
    • 4.7.3 Effect of Other ACA-Related Actuarial Issues on Self-Insured Plans
    • 4.7.4 Establishment of Creditable Coverage for Retiree Prescription Drug Plans

5 Stop-loss Insurance

  • 5.1 Background
    • 5.1.1 How Does SLI Protect the Self-Insured Plan?
  • 5.2 The Stop-loss Marketplace
    • 5.2.1 Entities Involved in SLI Transactions
    • 5.2.2 SLI Business Functions
      • 5.2.2.1 Marketing, Sales and Distribution
      • 5.2.2.2 Stop-loss Underwriting
      • 5.2.2.3 Stop-loss Policy Administration, Claims Administration and Reporting
      • 5.2.2.4 Stop-loss Policy Compliance and Insurance Accounting
      • 5.2.2.5 Risk-Taking
  • 5.3 Classification and Description of Stop-loss Coverage Types
    • 5.3.1 What Are The Key Variables Within SLI?
      • 5.3.1.1 Benefits Covered
      • 5.3.1.2 Contract Basis
      • 5.3.1.3 Known Versus Unknown Risks and Lasers
      • 5.3.1.4 Maximum Liability Covered by SLI
    • 5.3.2 Specific Stop-loss Variations
    • 5.3.3 Aggregate Stop-loss Variations
    • 5.3.4 Optional Features of Stop-loss Products
    • 5.3.5 Terminal Liability
    • 5.3.6 Level Funded Products
    • 5.3.7 Summary of Stop-loss Coverage Types
  • 5.4 Developing Stop-loss Manuals
    • 5.4.1 Specific Premium Rates
      • 5.4.1.1 Specific Base Claim Rates
      • 5.4.1.2 Adjustments to Specific Base Claim Rates
      • 5.4.1.3 Deductible Leveraging
      • 5.4.1.4 Loads for Expenses and Profit
    • 5.4.2 Manual Aggregate Attachment Point Factors
    • 5.4.3 Aggregate Premium Rates
  • 5.5 Specific Stop-loss Underwriting Considerations
    • 5.5.1 Underwriting Information
      • 5.5.1.1 Data Quality
      • 5.5.1.2 Benefit Plan Considerations
      • 5.5.1.3 Enrollment Data
      • 5.5.1.4 Competition
      • 5.5.1.5 Stop-loss Experience
      • 5.5.1.6 Known Loss Data
    • 5.5.2 Stop-loss Policy Terms
      • 5.5.2.1 Specific Deductible
      • 5.5.2.2 Known Loss Underwriting
      • 5.5.2.3 Aggregating Specific Stop Loss
  • 5.6 Aggregate Stop-loss Underwriting Considerations
  • 5.7 Measuring Stop-loss Experience
    • 5.7.1 Reserving: Specific Stop Loss
    • 5.7.2 Reserving: Aggregate Stop Loss
    • 5.7.3 Block Management
  • 5.8 Regulatory and Compliance Functions
    • 5.8.1 Filings
    • 5.8.2 Other Compliance Activities

6 Regulation

  • 6.1 Self-Insured Plans and Regulatory Intersections: Federal
  • 6.2 Actuarial Roles And Regulatory Intersections: State
    • 6.2.1 MEWAs
    • 6.2.2 Stop Loss

7 Conclusion

Endnotes

References

Glossary

Appendix A Specific Base-cost Determination

Appendix B Leveraging

  • B.1 Claims Probability Distribution
  • B.2 Leveraged Trend
  • B.3 Leveraged Trend by Service
  • B.4 Leveraged Discounts
  • B.5 Leveraged Discounts by Claim Amount

Appendix C Sample Application for Determining Aggregate Stop-loss Pure Premium

  • C.1 Sample Application to Residual Claims Fund Premium Charge Estimation in Level Funded Aggregate Products

Appendix D Summary of Stop-loss Regulation by State

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