Self-Funding Terminology Cheat Sheet

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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.
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Self-Funding Terminology Cheat Sheet

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