A Message from the CEO
 by Charles Crispin, President & CEO, Evergreen Re

 Reinsurance:  Are you really protected?

We talk a lot about catastrophic risk and the growing threat of million dollar plus claims, but it usually doesn’t become crystal clear to clients until they experience claims of this severity.  All of a sudden what we do and why we do it becomes truly important – protecting health plans and other managed care organizations from seemingly impossible yet potentially destructive claims.

For instance, a Medicare Advantage Plan in its first year of operation recently had an 80-year-old member admitted at a hospital for surgery.  A previously undiagnosed hemophiliac, the member spent 22 days in the hospital and died. 

The billed charges were over $3 million and the Medicare Allowable reimbursement was $750,000. Because the MA Plan had true reinsurance coverage — coverage with no limits or per diems —  the Plan ended up transferring 90% of the cost over their deductible for this catastrophic claim.  Their Medical Loss Ratio (MLR) and Capital were well-protected.

Had this MA plan chosen reinsurance coverage with a $150K deductible and per diem limits of, for example, $5,000, they would have been liable for the entire $750,000.  Even with a high per diem limitation of $10,000, at a $150K deductible, the Plan would have only received reinsurance reimbursement of $63,000.  So while they may have perceived they were buying protection from claims greater than $150K, in effect due to the per diem limits, their reinsurance deductible was really $680,000!  Neither of these coverage approaches would have provided effective MLR and Capital protection.

As the nation’s largest health plan reinsurance broker, we have a responsibility to help our clients understand the real impact of coverage decisions.  Our size and broad market access allow us to analyze exposure and market potentially catastrophic risk to major insurers worldwide to get the best coverage at the best price.  But even more importantly, our approach saves our clients more than $30 million in premiums annually and gives them the ability to secure coverage that can fully protect them against true catastrophic risk.