The great majority of us will not win the super lotto or even know anyone who did, but we know someone will win it. All too often that same common sense of knowing that incredibly rare things will in fact happen does not seem to apply in the area of self-funding health insurance. Historically, stop-loss coverage has largely been purchased on a year to year basis, with, in too many cases, no consideration for how the stop-loss carrier will react if it is faced with very large expected ongoing claims, such as hemophilia. This lack of concern largely comes from an assumption on the consultant’s part that since it rarely happens, there is no need to worry about it. (The client usually assumes that the stop-loss carrier will not react unreasonably if large claims occur, which is a sanguine but also unwise assumption.) Ignorance might be bliss, but it can also be very expensive.

President Reagan famously said of his agreements with the Soviet Union, “Trust but verify.” No one is calling the stop-loss carriers the Soviet Union, of course, but nonetheless in dealing with the question of long term guarantees on stop-loss coverage it is important to know what the carrier will guarantee; if something is not guaranteed, why not? What will the carrier do at renewal if it is faced with large ongoing claims for years to come? Most carriers in good times will offer a No New Laser contract with a renewal rate cap in the 40-50% range, but many will not guarantee to renew that option on the following renewal if the claims are especially bad looking forward. The could leave the employer in a terrible predicament with likely no attractive options.

This is why we have developed an extensive report called a Stress Test, similar to what banks are required to have from the regulators. Caveat Emptor without that test.