Managed Care - March 2009 - (Page 17) How to protect against million-dollar claims: advice from a pro By Charles Crispin, CEO, Evergreen Re ell-designed reinsurance is a way to protect MCO balance sheets by transferring the financial risk of unpredictable and serious cases that threaten medical loss ratio and capital reserves. Catastrophic coverage should: Be comprehensive. Cover not just inpatient hospital claims, but also claims incurred in outpatient settings, including physician offices and at home. Specialty drugs, which could cost hundreds of thousands of dollars annually, can be administered in all these settings. Have no daily maximum. Eliminate per diem (ADM — average daily maximum) caps. A maximum allowable limit reduces reinsurance premiums but defeats the purpose of the coverage. For instance, if a reinsurance policy notes it will only allow claims up to an ADM of $10,000 per day and the patient is in a level 3 or 4 NICU with an average daily cost of $20,000, half the liability would not be eligible under the reinsurance. If the patient is hospitalized in that same NICU for 100 days, $1 million of liability would not be eligible under the reinsurance. Limit exposure. Consider your exposure. For example, if you have a Medicaid population with a high percent of native Americans, you would expect a high incidence of diabetes that could require many catastrophic conditions/treatments. If you are in an area of the country with a high concentration of highly specialized tertiary facilities, W transplant frequency might be affected. What lines of business are you in? What are the underlying member benefits reinsured? For example, if members have a $5 million maximum, a reinsurance limit of $1 million per member will not protect solvency on a $5 million claim. Consider capital status. What is your underlying capital position? Have you suffered asset impairment, exposed the organization to regulatory scrutiny, or risked failing to meet required levels of surplus to continue operations? Is the organization experiencing rapid growth in new lines of business, increasing surplus requirements? Will large capital expenditures be required as part of IT infrastructure projects? Consider provider network. Understand the nature of your provider network, particularly relative to high-cost cases. Does your community offer a wide choice of competitive dialysis providers or has choice been limited and cost control compromised? What services must be referred outside the community and do you have access to specialized networks and other strategies to control severity of claims in these settings? Effective reinsurance strategy includes enhancing how you manage today’s risk to reduce future reinsurance expense. This is critical, yet frequently poorly implemented. Control premium increases. Watch reinsurance policy language. Poorly structured reinsurance agreements could allow reinsurers to increase premiums sharply based on membership fluctuations, claims experience, and other factors. are typically infants rescued heroically at “low” birth weights (5.8 pounds or less) or “very low” birth weights ( 3 pounds, 4 ounces or less). “We are saving babies now that wouldn’t have been attempted 10 years ago, with costs increasing accordingly,” says Jane Johnson, RN, director of medical management at ING. About 1 in 10 newborns spends some time in a NICU because he or she may need temperaturecontrolled beds, special feedings, or treatments for complications. Low-weight births rose 8.3 percent in 2006, the highest rate in four decades and the latest year for which figures are available from the Centers for Disease Control and Prevention. Besides weight issues, there are time issues. More than half of all preterm births (before 37 weeks) are admitted to a NICU, according to CDC data. “If you have premature infants born at 23–24 weeks instead of 40 weeks gestation, there is a high likelihood they are going to be very expensive,” Johnson says. A baby born at 24 weeks costs about $346,000, and individual cases can run $500,000 or higher. The March of Dimes, a not-for-profit agency that supports pregnancy and baby health, gave the nation a “D” in its first Premature Birth Report Card in November, naming smoking and lack of insurance for many women of childbearing age as contributing to premature births. “Smoking and MARCH 2009 / MANAGED CARE 17
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