Stop-loss insurance protects a plan sponsor from greater than expected claims; whether for a single plan participant or for the plan participants in the aggregate.
However, not all stop-loss insurance provides complete protection. This is why a plan sponsor needs to be aware of its policy’s “contract basis”.
In a self-funded health plan, the plan sponsor agrees to pay the covered medical expenses of the plan’s participants. However, the plan sponsor has no control over the billing practices of a participant’s medical provider. What happens if a plan participant goes to the doctor in December, but the doctor does not bill the plan until the next policy year? Will the claim be covered by stop-loss, and, if so, by which policy?
We will discuss three “contract bases”. The first is known as “Paid” or “12/12”. This type of policy requires that a claim be incurred and paid during the policy coverage period. A claim incurred in December, but not billed and paid until January, will not be covered by a policy with a 12/12 contract basis.
The second type of contract basis is “Run-In” or “15/12”. This type of policy extends coverage to claims incurred during the 3-month period prior to the beginning of the policy coverage period, as long as they are paid during the policy coverage period. A claim incurred in December, but not billed and paid until January, will be covered by a policy with a 15/12 contract basis.
The third type of contract basis is “Run-Out” or “12/15”. This type of policy covers claims incurred during the policy coverage period, as long as they are paid during the policy coverage period or within three months after the end of the policy coverage period. A claim incurred prior to the beginning of the policy coverage period will not be covered by a 12/15 policy even if it is paid during the policy coverage period.
A policy’s “contract basis” is most relevant when a plan sponsor is moving between a self-funded health plan and a fully-insured health plan or when the plan sponsor is changing insurance contracts. If the plan sponsor is not aware of the “contract basis” of its stop-loss insurance, it could end up with a gap in coverage and unexpected costs.