How network discounts can impact stop loss insurance pricing 

When third-party administrators (TPAs) solicit quotes for stop loss insurance for their client companies that self-insure, the TPAs may not be getting the maximum discounts available from stop loss carriers if the carriers don’t receive transparent data from the provider network.

That’s why it’s so important to make sure the network is sharing data at every level, says Brian Fallon, regional vice president of network management, payor relations and analytics at HealthLink.

“TPAs are now asking the carriers about the network ratings and the frequency of their evaluation,” Fallon says.

Smart Business spoke with Fallon about network discounts and stop loss pricing.

How does a stop loss carrier evaluate a managed care network? 

A key component is the claimed discounts relative to stop loss pricing. Several factors determine the discount’s effectiveness, including the member’s location, employer’s location (not necessarily the same) and composition of provider contracts.

The clinical referral patterns of the providers are also considered because members in a rural market may incur initial care at a rural facility. Specialty or tertiary care, however, typically migrates to a metropolitan market, where the available scope of services is enhanced and managed contracts are structured on a per diem or DRG (diagnosis-related group) basis. Those contracts contain fixed pricing for inpatient and outpatient services, reducing the exposure to billed charges.

Additionally, carriers review the structure of the network, the volume of claims flowing through the network on an aggregate basis and the credibility factor assigned to the network. A network with credible claims data has less reliance on manual pricing.

Why is transparency of data so important? 

The greatest challenge of a reinsurance carrier is the lack of transparency provided by the networks being evaluated. Networks may provide average savings or net effect discounts that are not regionally based but reflective of larger geographic regions, thus distorting the accuracy of the discounts.

Carriers have to be able to consider the contractual allowed amounts at a specific facility, as well as paid amounts. Networks also need to disclose actual facility rates inclusive of stop loss provisions at the facility.

Network discounts at high dollar amounts are not reflected accurately via the averages that are commonly cited. When brokers or consultants market self-funded employer groups with stop loss, they typically only provide the overall average discount for the group. Networks and self-funded carriers market their overall average discounts and, again, the focus is on the total claims.

How do network discounts impact stop loss pricing? 

The discount information is important for understanding the aggregate attachment point calculations but not really relevant or helpful for specific or large claim evaluation.

PPO (preferred provider organization) discounts for high-dollar claims after the specific deductible will differ from the typically provided averages. The actual discounts are typically lower on shock claims, but the reduction in stop loss liability is higher. Networks should be able to discuss the net effect discount as it relates to various stop loss price points with the carrier.

Other factors affecting pricing are the availability of vendors or arrangements that impact trigger diagnosis such as dialysis or an effective pharmacy benefit management program. Pricing offsets can be 5 to 10 percent of the specific deductible premium.

Small groups also are entering the self-funded market, as mandated benefits, premium taxes and the Affordable Care Act provide small employers motivation.

TPAs must know how a stop loss carrier rates the network being promoted to their client — and how often the networks provide the data.

TPAs and their clients alike are looking for new ways to address cost, such as narrow networks, steering through benefit plan design to the most cost-effective providers or reported discounts evaluated on an adjusted cost basis through case mix indexing. Members also are becoming prudent as they share more of the burden of cost. Thus, transparency and dialog on the part of the networks, TPAs and reinsurance carriers is becoming ever more important. ● 

Insights Health Care is brought to you by HealthLink