In a typical self-funded plan, the reinsurance cost can represent a significant portion of the overall plan’s cost, or it can be a relatively small portion of the overall plan’s cost. There are a number of factors which determine how much of the stop loss premium is attributable to the overall cost of the plan. The first is the size of the employer group itself and the second and more important element is the size of the individual Specific Deductible the group is comfortable assuming. Exhibit 1.1, illustrates the cost and transfer of Specific deductible risk in a self-funded group with approximately 100 employee lives.
Generally speaking the larger the employer group size, the higher retention limit they can afford from a cash flow perspective, so 200 employees would not necessarily be $600k in premium. The account with 200 employee lives could assume a higher retention limit on a specific individual claimant basis, thereby reducing the fixed cost premium as a result.A company of this size would most definitely need an aggregate protection policy, for those claims from dollar one, up to the $25,000.00 deductible. The aggregate exposure is generally capped at 125% of “Expected claims” from $0.01 to $25,000.00, however, this “Corridor” can be reduced to 120% or 115% of “Expected” in some cases, which is carrier driven as to how compressed they will allow the corridor to become. And as one would guess, as the Aggregate corridor becomes compressed, the aggregate premium/costs go up proportionately. In this particular program, the fronting carrier(s) are required to assume 100% of the aggregate policy risk, therefore this program is a “Specific Deductible Only Captive.”