Managed Care - March 2009 - (Page 15) Also, health insurers could be grossly underinsured. “Trending of claims greater than one million dollars paid is advancing much more rapidly than perceived by most managed care organizations,” Crispin says. One Beacon Professional Partners, a reinsurer, has 100 managed care organization (MCO) clients, and only 40 are properly reinsured for catastrophic claims, according to the company’s top underwriter. “Many HMO executives don’t think about this on a day-to-day basis so they may think the frequency of claims more than $1 million is a lot lower than what it really is,” says Alden Skar, an ING vice president and managing actuary. “Claims that were $500,000 a few years ago could now be more than $1 million, and those that were more than $1 million may now be well over $2 million,” Skar adds. Mainly because of increases in the numbers of high-dollar claims and in the severity of claims, MCO earnings in the first half of 2008 were 27.5 percent below what they had been a year earlier, A.M. Best reported in October. Surprise, surprise “Plans were not prepared for catastrophic claims,” says Eva Sverdlova, a senior financial analyst at Best, referring to an uptick in the median medical loss ratio at provider-owned plans: from 86.7 percent in 2004 to 89.3 percent in 2007. “Some that we analyzed had to reach into capi- tal and surplus to cover losses of high claims. This is a big reason companies are not being as profitable as they thought they would be.” Catastrophic reinsurance isn’t cheap. Premiums have more than doubled since 2000, and now range from $500,000 to $10 million annually for a regional plan with a million members, says Dan Carlson at Marsh Inc. For example, a policy with 100,000 members that costs $2 PMPM is $200,000 per month or $2.4 million annually, according to another broker. “Claims are increasing dramatically, so premiums for passing the risk off are likewise increasing,” says ING’s Skar. National health insurers, which industry insiders refer to as the BUCAs — Blue Cross, United, Cigna, and Aetna, companies with more than a million members — typically do not purchase reinsurance. “Large health plans cover so many members that they have sufficient spread of risk and may consider going without the coverage,” says Christine Manzone, vice president for underwriting and HMO reinsurance at One Beacon Professional Partners. That could change. “It might be something they start to look at for budget certainty as they view the trends,” says John O’Connor, senior vice president of Willis Re, which brokers reinsurance sold to MCOs. Regional carriers in one to three states that want to manage risk typically buy reinsurance. “Small- to Average billed charges for catastrophic illnesses Transplantation $1.3 million $1.1 million $1.1 million Premature births One day in an NICU $3,500–4,500 (outlier cases at certain facilities: up to $17,000 daily) Preemies born at 24 rather than 40 weeks $346,000 $800,000 Intestine transplant Source: Milliman Intestine with other organ Heart transplant Heart-lung transplant Sources: ING Reinsurance, AON Reinsurance. MARCH 2009 / MANAGED CARE 15
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.