Mind the Gap!

Recently an employer with approximately 3,500 employees covered by their self-funded health plan asked us to assist them with two large claims that "needed to be paid by March 31st." There was an urgency to this request as it was St. Patrick’s Day and only 14 days left in March. The first was a baby born early December who remained in the NICU from birth, and it was now March. The second was for a claimant who exceeded the $350k stop loss back in 2024 but had a lot of claims incurred in 2024 not paid yet in 2025 because they were still in a facility. The benefits manager admitted they were new to the ways of stop loss and self-funded plans having come from a fully insured background. The first place I looked was their 2024 stop loss policy and then reviewed their 2025 policy. Here is what I found:

• The 2024 policy was written as a 12/15 contract. The numerator refers to the number of months a claim can be incurred while the denominator refers to the number of months the claim can be paid.

• Incurred means the date of service.

• Paid means when the carrier or TPA pays the claim.

• Since this was a calendar year policy, the numerator means the claim needed to be incurred (have a date of service) in the 12 months of the calendar year or in this case January 1, 2024, through December 31, 2024. 

• Any claims incurred in 2024 must be PAID no later than March 31, 2025, which is the 15-month period January 1, 2024, through March 31, 2025. 

Thus, the rush to make sure those claims were paid by the carrier/TPA by March 31st. 

Let's leave that to the side and talk about their stop loss renewal which was effective January 1, 2025. When this policy renewed for 2025 the renewal was 12/18.

• Numerator = 12 means the claim must be incurred in the 12-month period January 1, 2025, through December 31, 2025

• Denominator = 18 means the claims must be paid in the 18-month period January 1, 2025, through June 30, 2026

This is where you need to mind the gap.

To recap: we have a 2024 policy written as 12/15 (claims incurred in the first 12 months can be paid during the 15 months). Then we have a renewal policy written as 12/18 (claims incurred in the first 12 months can be paid during the 18 months). Do you see the gap yet? Hint: it is in the numerator of the renewal policy and the denominator of the 2024 policy. The group nor the broker was aware of the gap. By having a first-year policy that must be paid by March 31st they are under the gun to have all claims paid by then but that is a tall order. Some hospitals do not bill for months after the dates of service. Or someone may still be in a facility as our second large claimant was and no bill produced yet. And in the renewal period, all is brand new on January 1, 2025 because the renewal policy is a 12/18 meaning it will only consider claims incurred January 1, 2025 through December 31, 2025.

What about the baby in the hospital who has claims incurred in December 2024 and remains in the NICU through March of the new year? The renewal policy will not count the December claims because they were incurred prior to January 1, 2025, and the original policy will not consider those December claims because no bill will be presented for payment by March 31st. The result is the client is on the hook for the December claims in full. Let's assume the NICU daily charge is $10k and baby is inpatient in December for 21 days. That is $210,000. They were advised by their broker not to worry about the December claims because they would not have exceeded the stop loss of $350k anyway. True they might not have exceeded the stop loss BUT if the renewal policy was renewed as a paid contract or also known as a gapless renewal, those claims would have been carried forward and used to help satisfy the 2025 specific stop loss deductible of $350k. 

What is a paid contract? Simply stated, a paid contract is one that will cover all claims paid during the policy year regardless of the date incurred. Using the above as an example, if this policy was renewed as a paid contract it might look like a 24/18 policy. This means claims incurred from January 1, 2024, through December 31, 2025 (24 months) can be paid January 1, 2025, through June 30, 2026. (18 months) That is plenty of time to have claims paid in an orderly fashion. This also provides the carrier/TPA with an opportunity to scrutinize the large claims taking advantage of any discount they can apply for and not rushing to pay it just so it gets paid. Had this group renewed as a 24/18 policy, the claims incurred in December would be credited toward the 2025 stop loss deductible of $350k. But now they are not covered under the 2025 stop loss deductible. 

The second claimant needs a little further explanation. They had some exceptionally large claims paid out in 2024 and they hit the stop loss deductible of $350k. The TPA estimated that of the $1.0M+ billed claim pending they would pay out just over $200k due to negotiating and discounts. Thankfully, they committed to paying the $200k in claims before March 31st but this caused a tremendous amount of stress from the benefits team to the finance team. Understandable. 

Minding the gap is a critical part of any stop loss review. The concept is not complex when you boil it down to a numerator and a denominator. The last place you want to be is sitting with your CFO or CEO explaining to them why a large claim (you can insert your own number here for effect) was not covered under the prior year or new year stop loss policy. All it takes is one large claim to fall through the gap. Take a few minutes today to stop what you are doing and pull out the prior year stop loss policy and the current and match them up. Carefully review incurred dates and paid dates. As they say in New York: "see something, say something" and "mind the gap" when getting off the train or subway. No one wants to fall through that gap.