Stop-loss insurance has traditionally been sold only one year at a time, which does not show the potential liabilities and risks in later years. In a worst-case scenario, the self-funded plan might not be able to purchase coverage elsewhere, thus stop-loss insurance, like a marriage, should be seen as a long-term proposition. Fortunately, we are able to create a Stress Test that shows the potential cost impact for a plan over a four year period (or longer if desired) in best case and worst case scenarios, as defined.
Generally in the marketplace it is possible to purchase for one year a No New Laser|Rate Cap (NNL|RC) rider that promises no laser on renewal with renewal rate cap of typically 30-50%. For the purposes of the Stress Tests below, the rough average cost of 8% for that rider is used and the rate cap is set at 40%. That rider is generally not guaranteed to be available after the first year if there are large ongoing claims. In the Stress Tests in worst case scenarios, the presumption is made that the NNL|RC option will only apply for year two, and it is presumed that the self-funded plan will have to pay 100% of the lasered amount.
The Stress Tests below show generic studies presuming that the Gibraltar plan is 15% more costly in year one where the NNL|RC is not in place, or 7% more if it is. It should be noted that the Gibraltar plan is not necessarily more expensive than other plans and in one renewal it was dramatically lower in cost than the outside options, but for these hypothetical graphs, the Gibraltar plan is presumed to cost more.
The following Stress Tests range from a low of 150 employees up to 2,500 employees, but of course a stress test could be shown for a self-funded plan of any size. The relatively small sliver highlighted in yellow is the range of risk with the Gibraltar plan.
The Stress Tests show thresholds set at a severe financial pain or possible bankruptcy level if the costs ever got that high. Those hypothetical levels can be set at any level desired by the self-funded plan.