UpClose with Ward Humphreys, Vice President or Evergreen Re

SHORT STAY/HIGH DOLLAR CLAIMS:
VOLATILE RISK NOT COVERED BY TRADITIONAL REINSURANCE

In July 2004 a health plan had a member admitted for a trauma to an out of area medical center. The plan negotiated a discount for a six-day stay and the final bill was $575,000. Under the plan’s reinsurance coverage, the average daily maximum (ADM) for out of area claims was $6,000, which for the six-day stay equated to $36,000 toward satisfaction of their $150,000 deductible. The plan received zero reimbursement for a $575,000 claim.

The technology driven intensity of care (and charges) now being provided has changed the “biology” of catastrophic/reinsurance claims. The traditional structure of reinsurance (with ADM’s) offered adequate protection when the risk to a health plan was from members with lengthy inpatient confinements. In the era of short stay/high dollar claims, average daily maximums shift the most volatile risk back to the health plan. How severe are the consequences?

• Health plans are left unprotected from the very catastrophic risk they seek to reinsure.
• The ability to effectively and predictably manage the health plan’s medical loss ratio is lost.
• Significant chunks of profit margin are consumed by large unreimbursed claims.

A health plan can protect itself by purchasing affordable coverage without daily limitations. Further, under these alternative structures, growing risk exposures like injectable medications (blood products in particular) can be included. In contrast, under a traditional reinsurance structure, injectables are usually not covered if delivered in other than an inpatient setting. When covered under inpatient, injectables would be subject to the average daily maximum, which when combined with facility charges may not adequately cover the expense. An effective risk management strategy allows for the most efficient use of a health plan’s capital.