Self-Funding Terminology Cheat Sheet

Self-Funding Terminology Cheat Sheet
Key Term Alternative Names Definition
Aggregate Stop-Loss
Aggregating Specific Corridor
Claims Corridor
Claims Funding (Level Funding)
Contract Period
ASL, Agg
Aggregating Specific Deductible, Aggregating
Spec
Corridor Factor, Risk corridor, Attachment
Corridor, Attachment percentage
Claim liability, Maximum claim exposure, Monthly
claims funding (MCF), Maximum claims liability
Incurred Period, Paid Period, Coverage Period,
Policy Period
Aggregate stop-loss insurance provides a maximum claim
liability for the entire group.
This contract provision is often offered in TPA arrangements.
It is an extra form of risk to the employer on large claimant(s)
exceeding the ISL, which reduces premiums on their quote.
The aggregating specific increases the likelihood of the
employer hitting their aggregate claim liability, and reduces the
risk on the individual stop loss policy.
The area that represents the risk corridor above expected
claims. For level funding products, this corridor is typically 10
percent except where state mandates require higher. For
Graded Funding, this corridor is typically 20 or 25 percent.
Typically expressed on a per-month basis, the claims funding
is used to define the amount which the client will be paying for
claims in a plan year. At year-end this number is compared
against total paid claims for the year to determine if there is a
surplus available.
The time covered under a contract designating when a claim is
incurred and when the claim must be paid to qualify for
reimbursement.
Contract Type
Credibility -
Deficit (Graded Funding)
Deficit (Level Funding)
Deficit Carryforward
Dual Choice
Eligibility Roster
Expected Claims
Experience Underwriting
Fixed Costs
IBNR
12/12, 15/12, 12/15, 12/18, 24/12, Paid
Aggregate claim deficit, claims deficit, aggregate
loss
Aggregate claim deficit, claims deficit, aggregate
loss
Aggregate Limitation Factor (ALF), Recoverable
Deficit Percentage (RDP), Deficit Carryover
Dual-Option
Census Report, list of covered members,
coverage report
Expected
Credibility based underwriting
Administrative, Commission, Stop Loss
Premiums
Incurred but not reported claims
Refers to contracts typically seen in self-funded arrangements
that are offered through TPAs (third party administrators) in
conjunction with a reinsurer. The first number refers to the
"Incurral Period" and the second number refers to the "Paid
Period". For example, a 12/12 contract covers all claims that
are both incurred and paid within the 12 month contract period.
When underwriting claims experience (either for a prospect or
for a renewal), the client's claims experience is assigned a
'credibility' factor. Loosely translates to a "predictability factor".
Based on size of the group, timeframe of the experience period
(mature or immature experience period), Pooling level and
expected large claims. The larger the group, the higher their
credibility.
The difference at year end between the client's maximum
claims liability and paid non-pooled claims, when paid claims
exceed the client's liability. With Graded funding the client will
be responsible for paying all claims up to their maximum
claims liability. The deficit (or a portion of the deficit) may be
carried forward into the next policy year (see Deficit Carry
Forward definition).
The difference at year end between the client's claims funding
and paid non-pooled claims, when paid claims exceed the
client's claims funding.Under level funding, deficits are not
carried forward into the next year and the client will not owe
any additional costs.
Provision which allows an insurer the opportunity to recover a
previous aggregate claims deficit in future years when
experience runs well. Typically this is set at 10%. At the end
of the policy year, either the entire deficit or 10% of the year's
claim attachment (whichever is less) is carried forward into the
next year. This is not added to the liability, but is collected
within the claim liability in future years when the client's paid
claims are less than the claim liability. This provision is not
offered on some Level Funding products.
An option offered to individuals in a group to choose between
two or more health plans.
Employee listing usually provided by the insurer, in some
cases available through the insurer's proprietary online
systems.
The dollar amount of claims anticipated to be paid based on a
plan's characteristics.
Refers to a method of underwriting both at presale and
renewal which factors in the client's previous year's claims
experience to predict future claim costs.
Consists of Administration Fee, Commissions (if applicable),
Individual Stop Loss Premium, and Aggregate Stop Loss
Premium. Paid monthly based on enrollment.
Claims that have been "Incurred But Not Reported". Refers to
claims that are in the "lag period" that occurs between a
claim's incurral date and paid date.

Immature Rate
Individual Stop Loss
Lag Report
First Year Rate, 10-Month Rate
ISL, SSL, Specific Stop Loss Level, Pooling
Point, Large Claim Deductible
IBNR report
A reduced pricing structure reserved for the first 12 months of
a plan. Such a rate is possible due to reduced claims liability in
months one and two of a first year plan because of the claim
lag. Fully insured carriers may price at an immature level, but
most often this is seen in Self-Funded plans offered through
third party administrators. This arrangement typically results in
a maturing factor being applied at renewal.
Individual stop-loss insurance provides reimbursement in the
event an individual plan participant has claims that exceed the
ISL Level during a contract period. In some states mandate
minimum stop loss levels.
Usually requested for a client's accounting/audit purposes, this
report helps them determine an estimated terminal or runout
liability, based on lag times seen on the plan during the
preceding 12 month period.
Lagged Membership -
Refers to a lag applied to membership. Graded Funding
applies a 2-month lag to membership for determining monthly
claims liability. When underwriting claims experience, it is also
typical to see a 1 or 2 month lag applied to monthly
membership. In both scenarios, the lag is applied to account
for the relationship between enrollment data and paid claims.
Laser -
This is an additional form of risk to the employer. For large
claimants which may be ongoing, the stop loss carrier alters
the ISL coverage for certain claimant(s). For instance, if the
client's ISL level is $25,000, an individual with a serious
ongoing claim may have their own ISL of $150,000. The
difference between the $25,000 and $150,000 may or may not
accumulate to the employer's aggregate claim liability, which
means they will likely reach or exceed claim liability. Some
carriers do not mandate lasers; however, many will consider
this upon employer or broker request.
Mature Rate - Reflects a full, 12-month claims liability.
Minimum Attachment
Monthly Claim Liability
Non-Pooled Claims
Paid Contract -
Plan Year
Pooled Claims
Premium Statement -
Reinsurance Carrier
MA
Claim liability, Maximum claim exposure,
Aggregate Liability, MAF = Monthly Attachment
Factor (Graded Funding), MCF = Monthly Claim
Funding (Level Funding)
Aggregate Claims, claims under the pooling level
Benefit Period
ISL claims, SSL claims, Specific Claims, Large
Claims, Shock Claims
Reinsurer
Run-In Bridge Protection, 15/12
A provision which sets a minimum claim attachment liability in
the event the client's enrollment shrinks. This allows insurer
and the client to control costs and risk should the enrollment
shrink. Calculated based upon a percentage of enrollment
(can be 90%, 95% or 100%) at the time of renewal. This is
typically not included in Level Funding products, but is typically
included in the Graded Funding product.
The amount, expressed in dollars per employee (and/or
dependent) per month used to define the claim liability for each
month. See Attachment Factor and Claims Funding.
Some Self-Funded clients buy insurance protection against
large individual claims. Paid claims up to the ISL threshold are
client liability, and accumulate to the client's aggregate stop
loss limits. Anything over the ISL threshold are Pooled claims.
The term non-pooled literally comes from the fact that these
claims are not "pooled" with other groups claims (see Pooled
Claims definition).
Refers to a self-funded contract which is providing stop loss
protection for all claims Incurred under the life of the policy that
are paid during the 12 month contract period. Some contracts
renew to a paid contract at their first renewal.
The 12-month period in which deductible and coinsurance
accumulates toward a plan participant's out-of-pocket
maximums.
Some Self-Funded clients buy insurance protection against
large individual claims. Paid claims exceeding the ISL
threshold are not client liability, and go to the "pool", thereby
becoming pooled claims. Some insurers, at renewal pooled
claims are pulled out of the experience analysis to provide
smaller groups more stability in their renewal increases.
This provides a listing of all employees with coverage levels
and premiums being billed. Premiums reflect Fixed Costs
(administrative fees including commissions and stop loss
premium) only.
This is the stop loss carrier providing ISL and/or ASL
protection to an employer. In a TPA arrangement, this is
usually a third party/entity, and therefore is not integrated.
Claims incurred prior to the first contract year and received
after the new effective date. These claims can be paid under a
"current year" contract that includes a run-in provision. Some
insurers can offer run-in protection on ISL, and must be
coordinated/priced for with underwriting. Pricing differs for
bridge protection versus a 15/12 contract (15/12 is more
protective and therefore has a higher premium, typically).

Run-out
State Premium Taxes
Surplus Share (Level Funding)
Surplus (Level Funding)
Surplus (Graded Funding)
Terminal Deficit Carryforward
Terminal Fees
Terminal Fund (Level Funding)
Terminal Fund (Graded Funding)
Total Costs
TPA
Year-End Reconciliation (Level Funding)
Terminal Liability Period, Incurred but not paid
claims, Run-off liability
Claims funding surplus
Claim surplus
TDC
Terminal Fixed Costs, Terminal ISL+ASL+Admin,
Terminal Protection Costs
Runout Liability, IBNR claims, terminals, reserves
Runout Liability, IBNR claims, terminals, terminal
claim liability, Reserves
Maximum Liability, Fully Funded Rates
Third Party Administrator, Administrator
Year-End Accounting, Surplus Accounting
The run-out period refers to the period of time immediately
following termination, during which time all claims incurred
prior to the termination date are being paid. Timely claims
submission, determination of medical necessity, clarification of
issues and claims processing all contribute to the run-out
period. Most contracts provide 3 months or 6 months of run-out
protection. Some insurers will allow 12-15 months.
An assessment levied by a federal or state government,
usually on the net premium income collected in a particular
jurisdiction. Premium taxes on self-funded plans are typically
lower, since only reinsurance premiums are taxed, whereas
the whole premium in a fully insured plan is taxed.
Refers to the underlying contract feature providing for a 'split'
of year-end surplus. Typically, the split will be 2/3 to the client,
and 1/3 to insurer. Other options include 50/50 and Level 100
(where the client retains full surplus).
Any positive amount remaining from annual claims funding
after paying actual claims and adjusting the terminal fund.
After the terminal fund has been adjusted, the remaining is
split typically can be 1/3 to insurer and 2/3 to the group in the
form of an administrative fee credit. (Note: surplus split will
vary based on situs state and underlying surplus share in
contract)
The positive difference at year end between the client's
maximum claims liability and paid non-pooled claims. This full
amount is retained by the client. Since Graded funding offers
the 'pay as you go' banking arrangement, there is no
reimbursement sent to the client, since the client retains all
unspent claim liability funds in their own bank account.
A feature, standard on most graded funding contracts, which
allows insurer to bring forward a previous surplus or deficit
when determining the client's terminal liability. Applies only to
groups which terminate off-anniversary.
Refers to the Fixed Costs which are charged the month after
termination for graded funding clients. These include costs for
administration of the plan, ISL coverage and ASL coverage for
set # of months after termination. Terminal Fees are typically
125% of the current year's admin, ISL and ASL rates and are
only charged once. Clients should pre-fund in the first year
and hold until termination since most insurers only charge a
set percentage in month 1 and remaining percentage in month
2.
Fund that is pre-funded by the client in the first year, held by
insurer and adjusted annually during the Year-End
Reconciliation. This pays for both terminal runout claims and
terminal fees for level funding clients. With level funding
clients, insurer will typically not owe any additional funds at
termination.
Runout Liability Fund that should be pre-funded by the client in
the first year and held until termination. Graded Funding
allows an employer to fund a percentage of their terminal
liability in months 1 and 2, since most insurers are billing the
client for that same percentage over month 1 and 2. The
terminal liability is held by the client, and may need to be
adjusted annually based on enrollment changes, claim liability
changes, and benefit changes. Client retains terminal fund
until termination. Graded funding clients are also charged
Terminal Fees.
Total amount of liability each month consisting of
administrative and insurance costs plus monthly claim liability.
For level funding clients, this represents the total payment they
will budget for and pay to insurer each month. For graded
funding clients, this represents the total liability they will budget
and may have to pay to insurer each month.
Refers to the third party/entity administering a plan (plan
documents, paying claims, servicing). May or may not
coordinate with employer and broker on other 'pieces' such as
Rental Network, Disease Management, Wellness Programs,
Reinsurance.
Refers to the reconciliation done by underwriting for insurer's
Level Funding clients. Accounts for surplus or deficit under
claims funding, terminal fund adjustment, and then splits
surplus (if applicable) according to surplus share in the
contract. In the case of a deficit, if a level funded product, it
may be written off by insurer and there are no additional
charges to the client.