‘ Mind the Gap’ – Don’t Get Stuck With a Bill Your Stop-loss Insurer Excludes
MyHealthGuide, www.myhealthguide.com
MyHealthGuide Source: Adam V. Russo, Esq., Co-founder, CEO of The Phia Group LLC, and contributing editor for Thompson Publishing Group’s the Employer’s Guide to Self-insuring Health Benefits, Todd Leeuwenburgh, Editor.
When visiting London, there are many fascinating sights to visit. You may choose to spend some time strolling around Piccadilly Circus, visiting some of the local pubs, or seeing historic Westminster Abbey or Big Ben. Regardless, one of the fastest and easiest ways to get from point A to point B is via the London Underground, or if you’re a local, the Tube. The Tube is London’s subway system, and if you’ve ever had the pleasure of using it, you’ll remember one thing above all else: “Mind the Gap!” In England, they want you to avoid the space between the boarding platform and the train.
When dealing with health plans, however, when we tell you to mind the gap, we’re not talking about trolley cars. Instead, we want you to be aware of the gaps in coverage that exist between plan documents and the stop-loss policies that insure them. Falling into one of these gaps is likely to be just as messy and painful as getting stuck under a moving train. When one of these gaps occur, it is also very likely that all we will see are lawsuits and a bad taste in the mouths of affected self-insured plans.
The biggest issue facing self-funded plans today is agreements between plans and the other various entities with whom they coordinate, and the lack of coordination therein. We currently see, across the industry, plans, stop-loss insurers, third-party administrators, PPO networks and hospitals litigating over the intent of their various agreements.
Stop-loss Agreements Don’t Mirror Self-funded Plans
For now, let’s focus on the agreements between stop-loss insurers and self-funded plans. This agreement is typically called the stop-loss reimbursement agreement. There are hundreds of cases involving fine print (and not so fine print) found in these agreements.
I love to tell my TPA clients: “Once an employee benefit plan suffers a bad experience with a stop-loss insurer, that plan comes to realize they are not as well protected beyond their specific deductible as they might have thought; that is a plan that will never self-fund again. They are gone, baby, gone to the fully insured world where they don’t need to deal with stop-loss denials.”
I hate it when my TPA clients tell me: “The stop-loss insurer said they would reimburse every payable claim, under the plan document, since the stop-loss agreement mirrors’ the plan document.” That doesn’t happen anymore, and if your insurer tells you the policy mirrors the plan, it is mistaken.
Keeping an e-mail that your broker sent you seven months ago stating that your plan is fully covered by stop-loss insurance will not help you when the claim is denied.
In my experience, whenever a stop-loss insurer denies a plan’s request for reimbursement, the plan’s first reaction is to accuse the insurer of bad faith dealings. The plan administrator, I’m told, didn’t do anything wrong — it paid the claims in strict accordance with plan document terms. Failure by the stop-loss insurer, therefore, to reimburse the plan can be attributable to nothing less than corruption at the highest level. Yet, we’ve discovered over time that gaps in coverage exist not because anyone has done something wrong, but rather, when two insurance policies simply don’t match up.
Example: Many self-funded plans feature an exclusion in their plan document that states that if an injury arises from the commission of a felonious act, the claim will be denied. Felonies are typically the most serious crimes in any system of criminal law. A standard definition of a felony is any crime punishable by more than one year in prison or by death. It takes effort to commit a felony. Meanwhile, the stop-loss policy protecting the aforementioned plan states in its own exclusions section that it will not provide reimbursement for claims paid to treat injuries arising from any illegal act. All misdemeanors are classed as illegal acts, but not as felonies. Most illegal acts are in fact not felonies. Indeed, most states consider a first, second and even third arrest for driving while under the influence of alcohol to be a misdemeanor — not a felony. Thus, if a plan participant is injured while driving drunk, the plan described above will pay the claims, since the illegal act was not felonious. But the stop-loss insurer will deny reimbursement, because the act was in fact illegal.
Not bad faith; just two entities that fail to mind the gap.
Definition of Payment’ May Vary
Gaps in coverage can span well beyond exclusions, however, and can trouble plans in all ways, from claims processing to payment. Looking at payment, for instance, another coverage gap deals with the issuance of money and the definition of “payment.”
Many plans will define “payment” as the moment that a claims processor determines a claim is payable, and instructs whomever is responsible for drafting payment to “cut a check.” The date that said payment instructions are issued is often considered by the claims processor to be the date of payment. Unfortunately, many stop-loss policies define payment as the actual mailing of the check or in some instances the actual receipt of said check by the intended recipient. If a plan is protected by its stop-loss policy until Dec. 31, 2009, and per policy terms, only claims paid before that date may be considered for reinsurance, if the definition of “payment” is not the same in both the policy and the plan document, you may be diving head first into a gap.
Example: The plan document defines payment as the date claims are approved for payment. On Dec. 29, 2009, the claims processor marks a claim as approved for payment, and issues instructions to their clearinghouse to cut a check and mail it to the health services provider. In the meantime, the stop-loss policy defines payment as the date upon which the check is mailed. The clearinghouse receives the payment instructions, drafts the check, and mails it on Jan. 2, 2010. According to the plan document, payment was made on Dec. 29, 2009. According to the stop-loss policy, payment was made on Jan. 2, 2010. Recall that the same policy also states that only claims paid before Dec. 31, 2009 are valid for reimbursement.
This claim is not covered by stop-loss. Mind the gap!
Lesson Involving Experimental Services
Every health plan has an experimental or investigational exclusion. While most plan documents look at these exclusions similarly, stop-loss insurers likely apply completely different exclusions.
Example: A health plan had a plan member who was being treated with chemotherapy for cancer. Her prognosis was very poor, and all FDA-approved therapies had not worked. So her physician suggested she try an experimental drug in addition to the FDA-approved treatment. The woman was told the experimental treatment would not be covered by her health plan, but she wanted to try it anyway. The woman’s claims amounted to about half a million dollars in addition to $100,000 in claims for the experimental drug. The TPA did not pay the $100,000 in claims, but submitted the remaining bills to the stop-loss insurer.
Unfortunately for the plan sponsor, the stop-loss insurer had its own exclusion that said it would not pay for any experimental treatment or for any standard treatment relating to, arising from, or in connection with the experimental treatment. So the entire claim was denied. If the woman had not taken those extra pills it would have covered everything, but because of the experimental treatment it denied everything.
This cost the employer $500,000 in claims it would either have not had to pay or have been able to get reimbursed from the stop-loss insurer if it had more closely compared their own plan document with the stop-loss contract.
Then the employer and TPA could found another stop-loss insurer. Or they could have applied for supplemental insurance to bridge this gap or changed their own plan document’s wording to match the stop-loss insurer’s language.
Three-part Harmony: Enter the PPO
As if the gap between the stop-loss insurer and plan were not enough, let’s add another party to the mix. One of the biggest areas of concern for a self-funded plan is the potential coverage gap between payment based on the terms of their PPO contract, and paying a claim based on the terms of their plan document and/or stop-loss policy (limiting payment to the usual and customary (U&C) price, for instance).
This is problematic on two fronts. The administrator is stuck between a rock and a hard place:
Do you pay in accordance with the PPO agreement, and risk losing stop-loss protection (since you paid more than the plan document and stop-loss contract allow)? or,
Do you risk losing your PPO discount, risk potential lawsuits with the provider and suffer balance billing of the patient (since you breached the PPO contract)?
In this situation, the stop-loss insurer would be justified in reimbursing only the U&C amount, per contract and plan document terms. In addition, many times the language of the stop-loss agreement allows that insurer to retain a firm that will audit the claims and identify U&C rates, independent of the claims administrator.
Plenty of firms are willing to audit claims and reduce them based on U&C rates. So now we have a plan that is being short-changed on its reimbursement by the stop-loss insurer, in comparison to what it paid to the provider under its PPO contract. That is a gap in coverage you want to watch out for!
Know When You’re Bound to a PPO Agreement
While plan document terms dictate that a plan must be prudent with plan assets, and that every claim should be carefully reviewed before payment is made, PPO agreements do not say the same.
Under PPO agreements, plans typically do not have a right to audit the claims. The contract specifically states that the plan agrees to pay a predetermined amount, with a fixed discount, within a certain period of time (typically 30 days). To make matters worse, the provider is the only party with a right to perform an audit — a “self audit!”
State courts agree that if a plan does not pay the claim in accordance with the PPO agreement, regardless of what the plan document says, that plan will lose breach-of-contract litigation in court. Under a breach-of-contract claim, brought by the provider under the PPO agreement, the question of breach is limited to the four corners of the supposedly breached PPO contract. Therefore, the plan will have to pay the claim in accordance with the terms of the PPO agreement, but will only be reimbursed by stop-loss based upon U&C rates. Mind that gap!
Therefore, the plan is not as well protected as it might have hoped. Costs are going up, and under health reform, lifetime maximums no longer exist. It is vital that plans look into potential reform issues, and mind the gap when purchasing stop-loss coverage.
More and more stop-loss insurers and managing general underwriters are drafting reimbursement agreements that specifically state that they will reimburse the plan the lesser of the negotiated discounted PPO rate, and the U&C price. In most situations, the lower rate will be the U&C rate, and the stop-loss insurer will gladly reimburse this amount (to the dismay of TPAs and their plans).
So, what do we do? Read the agreements before we sign them!
Don’t Have a Bad Experience
Plans and TPAs only have themselves to blame when these situations arise. It is not good enough that a broker advises a plan that the stop-loss agreement mirrors the plan document.
You need to have a qualified person read the terms of the stop-loss agreement and identify places where reimbursement terms may not quite match up with plan document terms. There are too many occasions when a plan and/or its broker simply choose the stop-loss contract offering the lowest premiums, rather than the contract with the fewest gaps in coverage. This needs to change because if it doesn’t, it will only result in more plans developing a serious distaste for self-funding.
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