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Revisiting PPO Contracts & Stop-Loss Gaps

By: Jon Jablon, Esq.

There’s no question that stop-loss insurance is important – or, more likely, absolutely necessary – for the viability of a self-funded health plan. As helpful as this measure of protection can be, however, it is not without certain risks. One such risk comes in the form of the potential for denials; it is insurance, after all. There are many potential “gaps” in coverage (where a health plan is required to pay a certain amount but the stop-loss carrier is not required to reimburse that entire amount), and one of the most prevalent tends to be those involving allowable amount calculations.

There are many ways that an SPD and stop-loss policy might define their respective payable amounts, and unfortunately the most prevalent gap comes in the form of the standard definitions: the SPD provides for payment at a negotiated rate, commonly a rate agreed-to within a PPO contract, and the stop-loss policy excludes anything in excess of “the general level of charges” or “the prevailing charge” in the area.

What Can Happen

To use the example of a $100,000 procedure, let’s assume the health plan is required to pay billed charges less a 20% discount, netting an allowable of $80,000. Meanwhile, when the claim is submitted to the stop-loss carrier, the carrier may reach a far lower allowable. Assuming the stop-loss policy does not promise to reimburse negotiated rates, which the vast majority do not, the carrier is not in any way bound to abide by the plan’s pricing, despite the plan’s contractual requirement pay the $80,000.

Many (or even most) stop-loss policies may be interpreted to allow the carrier to determine its allowable amount using certain tactics, such as (1) using a larger “area” than just the intuitive metro area of the hospital, considering charges of lower-priced rural hospitals outside of the metro area; (2) defining “charges” to be the amount actually accepted by providers, as opposed to the amount charged in the first instance; and (3) factoring in public payors as well, which skews the payor mix, rendering the “prevailing charge” far lower than amounts paid by just the private payor market.

Gaps in Coverage

When this happens – the Plan pays its network rate but the Carrier allows substantially less than that amount – this is not necessarily the carrier doing anything shady or dishonest or “wrong”, but instead this is a gap in coverage like any other. Although candidly most carriers will not be open to changing their basic U&C calculation and instead allowing whatever negotiated rate the Plan has paid, some carriers will work with their insured plans on a claim-by-claim basis to try to avoid or mitigate this dilemma.

For some of you, this is old news. The reason it’s worth bringing up again is because the memory of this important scenario tends to be somewhat cyclical: after stop-loss renewals are over for the year, people tend to forget about this potential gap, and an employer gets blindsided when it experiences a stop-loss denial on this basis later in the year. When reviewing a policy document for signature or even when a large in-network claim is incurred, we urge you to keep this potential gap in mind, so you can have a proactive conversation with the carrier. The Phia Group can offer to perform a “Gap-Free Analysis” to compare a plan document with a proposed policy document, and alert you to this type of issue – and many more!

The moral of the story? Check your policy – preferably, before it’s signed – so you know what to expect, and so you can talk to the carrier about this potential “gap” in coverage before you experience it first-hand.