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Return policy: insight: health reform has revived interest in provider excess-of-loss coverage.

Health care reform has created many new initiatives and programs. That is headline news. Some of these initiatives, however, are not so new.

One example of this is putting health care providers at financial risk for services rendered to a particular population through Accountable Care Organizations. Provider risk is not new; it began in the 1990s. Its return has also brought back another '90s idea: risk mitigation through Provider Excess of Loss coverage.

ACA legislation established guidelines for ACOs. In some circumstances, they receive capitation payments as a reimbursement method from the HMO.

Capitation reimbursements pay a fixed amount per person regardless of the care this person receives. This means the provider benefits financially if care is coordinated effectively or if the population is healthy and uses few services; it can also mean the provider incurs a loss if services rendered to the members far exceed expectations.

PEL insurance was created to minimize the impact to the at-risk provider in the event of a catastrophic claim incurred on an individual.

The challenging part of the underwriting and marketing of this product is determining how services rendered by the at-risk provider will be valued. Because the providers receive capitation payments for members to cover most fixed costs, reimbursements should reflect actual provider outlays or variable costs of a large claim. Per diem amounts for hospital services and a percentage of the Medicare-allowable fee schedule for physician's charges that are the approximate equivalent of 50% of billed charges may be used to value claims in a PEL policy.

Of course, how claims are valued is a significant factor in the price of this coverage.

While determining the method of valuing claims under the policy, it is important to choose an approach that is both cost-effective and makes it easy for the provider to establish whether it has a claim.

Sometimes the HMO offers this reporting service to the provider as part of the capitation arrangement. If not, the provider may need to adjust its administration system to accumulate services or encounter data with associated values based on the predetermined fee schedules or per diems in the PEL policy.

Good reporting is vital to the success of this coverage for both the provider and the PEL underwriter. PEL coverage generally has a time limitation on when eligible claims can be submitted. This can be a problem if the provider has a manually intensive procedure for generating claim reports from all of the HMOs for which they have capitation arrangements.

Also, the PEL carrier may have case management consulting services that can assist the provider if they are notified of a claim in a timely manner.

Despite the intricacies of this coverage, the protection PEL offers is critical in allowing providers the confidence to take risk.

Even if they do everything right and manage care as efficiently as possible, catastrophic claims can still happen. This coverage ensures the provider is not financially disadvantaged for a catastrophic claim outside of its control.

Best's Review contributor Michelle Fallahi is senior vice president, Excess Healthcare Reinsurance for RGA Reinsurance Co. She can be reached at
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Title Annotation:Life Selling
Author:Fallahi, Michelle
Publication:Best's Review
Date:Dec 1, 2012
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