Self-Insured FAQ

Advanced Aggregate

Advanced Aggregate is reinsurance provided for ERISA exempt Single Employer Trusts. Reinsurance over multiple self funded employers is provided by advancing aggregated coverage recoveries for risk between specific retention and a percentage of the fully funded and underwritten major medical insurance premium.

Aggregate Stop Loss/Reinsurance

Aggregate Stop Loss provides coverage against an entire population’s budget overrun in a calendar year. Coverage typically reimburses the policy owner when claims exceed 110 percent – 125 percent of the expected annual claim volume.

Aggregate Pharmacy Reinsurance

Aggregate Pharmacy Reinsurance is a program of coverage which shifts the financial risk of pharmacy benefits from the employer, or HMO, to the PBM and/or reinsurer. Coverage typically attaches at 110-125 percent of the expected annual budgeted amount.


A Capitation is a fixed dollar amount per plan member per month paid to providers regardless of medical utilization. The payment structure shifts the financial risk from the insurance company to the physician or hospital accepting payment. Physicians and hospitals buy stop loss to limit any potential catastrophic medical financial loss on any one member per year.

Case Rates

These are typically fixed hospital reimbursements by diagnosis or DRG codes. Most case rates provide for “outlier” codes which allow additional reimbursement for extra sick patients.

Capital Aggregate Program

This is an aggregate reinsurance program which provides two major features:

• Aggregate reinsurance attaching at 100% (not 125%, as is typical).

• Capital placed on the client’s Balance Sheet of $1-$2 million. The capital is priced at 5% of placement.

This product offers a very competitive alternative to the venture capital markets which typically requires equity, 15%-20%+ return, pay out in less than three years, and 10% interest.

Carry Forward

A Carry Forward is a negotiated endorsement to a policy allowing a member’s medical charges incurred in the last 31 days of the expiring policy year to accrue toward the new policy year member’s deductible.

Charge Master

A Charge Master is a price list typically classified by CPT-4 and ICD-9 or RBRVS codes. All stop loss and reinsurance policies refer to a specific list to avoid any confusion of the eligible covered charge amounts. Examples of such lists are MDR, HIAA, RBRVS, DRG, etc.


A Career Limiting Move is defined as bankruptcy or insolvency. This usually occurs when stop loss coverage is not understood.

Co Insurance

In Stop Loss, Co Insurance is the percentage of eligible charges reimbursed to the stop loss policyholder after the deductible has been satisfied. In major medical insurance, Co Insurance is percentage of eligible charges the individual policy holder is required to pay the medical provider for services rendered after the deductible has been satisfied.

Co Payment

Co-payment is a fixed (flat) dollar fee an individual insured pays each time he gets a professional service from a physician or ancillary medical technician.

Contingency Fees

A Contingency Fee is compensation to the agent above the commission. This fee is not usually discussed with the client. It is similar or identical to an underwriting profit or override on profitable business sales. In larger brokerages, these “fees” are usually negotiated by senior management, where the local agent is unaware the fees exist. RIMS recently mandated a policy statement that these fees be clearly divulged by all agents to avoid the appearance of impropriety.

Credit Life Reinsurance

Credit Life Reinsurance is coverage provided to insurance companies writing mortgage payment insurance. It can take the form of Specific, Aggregate, Quota Share and/or Surplus Relief depending on the needs of the insurance company being served.


A Declaration is an addendum to all stop loss and reinsurance policies which warrants all members expected to exceed 50% of retention have been reported prior to binding coverage.


Sometimes referred to as Retention, a Deductible is the dollar amount exceeded before a stop loss policy pays a claim. In Stop Loss and Reinsurance, a deductible accrues independently of any co insurance percentage.


Employee Retirement Income Security Act or ERISA Type Plans or Trusts

The ERISA Act provides federal laws and regulations pertaining to the operation of self funded or partially self funded health plans for single employers, unions, and municipalities. ERISA plans are effectively immune to state insurance laws and regulations regarding assumption of risk and solvency standards. However, Plans sponsored by municipalities may be regulated by the domiciled state. These plans may include Life, Health and Disability benefits. Managed Care plan designs may be used in ERISA type plans. The purchase of Specific and Aggregate reinsurance is optional, but usually done to transfer the risk of unpredictable catastrophic claims.

Excess and Surplus Clause

This is a standard Clause that means coverage is afforded after all other available insurances have been exhausted. It can also be associated with language stating coverage being applied to all medical charges the client is at risk for unless specifically excluded by design.

Excess of Loss

Excess of Loss is Stop Loss or Reinsurance is coverage that responds after a Specific retention or fixed dollar amount per individual or occurrence. This coverage may employ a Specific deductible or variations within an aggregating specific deductible. It is a second dollar coverage.

Expected Claim Value

The expected Claim value is the underwritten and forecasted medical expense liability used to rate premium.

Facultative Reinsurance

Facultative reinsurance is coverage where a Reinsurer evaluates a specific risk on a case-by-case basis. The primary insurer has no obligation to submit any risks to the reinsurer, and the reinsurer is free to accept or reject any risks submitted by the primary insurer or ceding company. Facultative reinsurance can be in the form of either Pro Rata or Excess of Loss coverage.

Fee For Service

Fee For Service is the full billed charge a provider invoices an insurer for services rendered.

Fee Schedule

A fee Schedule is an explicitly noted schedule used by the carrier to determine the eligible amount charged. In stop loss, the RBRVS charge master is used for re-pricing physician fees, and the Reasonable & Customary schedule is typically used in pricing the hospital reimbursement. The fee schedule used dramatically effects eligible and reimbursable charges.

Finite Reinsurance

Finite Reinsurance is defined by the Reinsurance Association of America as “a highly structured reinsurance contract where structured elements reduce the amount of risk assumed by reinsurers to the point that it may not meet the accounting requirements of risk transfer.” Finite reinsurance is typically coverage transferring little or no risk, and is designed to pay known losses, or improve problems related to cash flow from irregular market conditions involving interest rates, and asset values. It typically improves financial ratios related to compliance, and capital surplus reserves. There are many types of finite loss development coverages. The essence of coverage may amount to a line of credit to pay known losses today and reimburse the reinsurer by amortized future premium payments. NAIC has recently agreed on a uniform policy form. New York is currently investigating these contracts to determine if the coverage was improperly used to improve the values of publicly traded companies.


Fronting is the leasing of authorized insurance policy forms in individual states. Sponsoring carriers may elect to assume all, part, or none of the risk being assumed. Fronting carriers may, or may not act as reinsurers on the program. A fronting and reinsurance assignment is typically a program of transferring over an existing book ($2+M) of insurance into an existing authorized policy form, thus creating new market for risk. These programs are established to create or grow strong books of business, and to share in underwriting profits. Assumption of risk by the sponsoring agency is usually required to assure a true risk partnership and comfort reinsurers.

Fully Disabled Limitation

A Fully Disabled Limitation means no coverage is afforded a member who is in the hospital at the time the new policy becomes effective. This provision should be waived by the carrier by proper claims declaration.


A GA is a General Agent for a single carrier. A GA is bound legally to represent the best interest of their appointing carrier, and typically shares in both commissions and underwriting profits or overrides on profitable business.

Grace Period

A Grace Period is the number of days past the premium due date the premium will be accepted before canceling the policy for non-payment of premium. A typical grace period is 30 days.


A Health Maintenance Organization (HMO) is a state-designated insurance entity authorized to sell commercial, Medicare or Medicaid health insurance in certain counties. HMO’s are known for emphasizing preventative medicine, and paying their doctors and hospitals a fixed dollar capitation for each member assigned to a provider group. An HMO is typically separated from a PPO or Indemnity Health Insurance by two major things:

• A primary care physician referral is required to access a specialist’s care.

• The primary care physician is capitated.


Integrated Delivery Systems (IDS) are physician, hospital and insurance company joint ventures which are authorized to sell health insurance. Sometimes simple unorganized Physician and Hospital groups refer to themselves as integrated despite their inability to coordinate care and reduce cost.


An Irrevocable Letter of Credit is a bank document guaranteeing funds on account payable to the obligee in the event a contractor is unable to meet their obligations.


An Independent Practice Association (IPA) is typically a group of physicians who organize themselves into a contracting entity to care for an HMO’s and PPO’s members. It can also be a licensed HMO owned by its member physicians.

Maximum Per Diem

This term is used to convey the maximum reimbursement of hospital charges a policy holder will recover each day. It is a figure compared to the average cost per day derived by dividing the total charges by the length of stay.


A MEWA is a Multiple Employer Welfare Association. It is one of three protected classes of health insurance regulated by the department of Labor under ERISA federal legislation. The purpose of a MEWA is to insure large numbers of association membership employed by multiple employers with Major Medical Insurance. A Fully Insured Health Plan MEWA are not required to possess a state issued Certificate of Authority. Insulation from state compliance costs of premium tax, community rating and guarrantee issue regulations allow for reduced insurance costs to the employer. State compliance of Fully Insured MEWA Health Plans does require complete reinsurance be in place. Eligible Associations must maintain ERISA compliance standards. MEWA premium for Fully Insured Health Plan Major Medical coverage typically costs 5%- 20% less than traditional state regulated fully insured health plans.


A Managing General Underwriter (MGU), sometimes called an MGA — Managing General Agent, is an independent facility authorized by a carrier to rate and issue policies. MGU’s are legally bound to represent the best interests of their sponsoring carrier. They typically share in contingency fees and overrides on profitable business.

Most Favored Nations

A Most Favored Nations clause in a managed care contract guarantees that the lowest charge master will be used when filing claims.

Multiple Employer Welfare Arrangement – MEWA

A Multiple Employer Welfare Arrangement in the context of partially self funded health plans is any health program providing health insurance benefits to several UN-associated employer’s employees and dependents. MEWA’s must be separately approved, and comply with the state laws in each state it operates. There is pending federal legislation which would amend ERISA to include MEWA laws and regulations, therefore superseding state authority over these programs and opening the door to national MEWA’s. Dependent upon the state in which the plan is to be operated and the relationship of the employees to the PEO, a MEWA may have to be created in order to provide partially self funded health insurance benefits. Life, Health and Disability benefits may be included in the plan designs. Managed Care plan designs may be used by the MEWA. The purchase of Specific and Aggregate reinsurance is usually required to transfer the majority of risk to an approved insurance carrier. Historically, placement of MEWA stop loss is the hardest part of the program.

Multiple Loss Medical Reinsurance

Multiple Loss Medical Reinsurance is a feature found in high deductible employer stop loss policies. It provides additional coverage for medical charges incurred from the same trauma, or within a 50-mile radius, or within a period of 7 days. I.e. On a traditional $500,000 specific policy, the deductible drops from $500,000 to $10,000, and pays a benefit up to $490,000. Coverage is defined in terms of a maximum, minimum and 3 life warrants.


An Out of Pocket Maximum (OOP) is the annual total liability an individual, or family must pay before the plan pays 100% of all medical charges. For example, a car accident with two family members has $30,000 medical bill and they have a $2,500 individual deductible policy. Typically, the family will satisfy 2 deductibles and then 20% of the next $10,000 of charges before than plan pays 100% of all charges, i.e. $15,000 each would mean 2($2,500) + 2(20% ($10,000)) = $9,000 maximum Out Of Pocket family annual liability. (In this example the family is relieved from liability after each person exceeds $12,500 of annual claims). Traditionally this liability has a definite limit, but some health plans now forbid individual hospital per admission deductibles to attribute to the OOP.


An informal term used to describe a licensed carrier in a particular state or country.


A Pharmacy Benefit Manager is a company specializing in the administration of commercial pharmacy benefits.

Per Diem Contracts

Per Diem Contracts are contracts reimbursing hospitals a flat amount per day for specified hospital services.

Per Diem Maximum

A Per Diem Maximum is typically an in-patient hospital coverage, which limits the carrier’s exposure per day for eligible charges. It is required in all Provider Excess and HMO reinsurance policies. Special care should be taken to understand how large claims incurred within a small number of days are affected. Expressed as either a Maximum Daily Limit or Average Maximum Daily Limit, this coverage usually reduces the total eligible hospital charges reimbursable in the policy. The Average Daily Maximum Limit is richer coverage and should be sought.


Physician Hospital Organizations (PHO) are physician and hospital joint ventures typically organized to attract members from HMOs and self-insured employers.


Prepaid Health Plans (PHP), sometimes referred to as MPHP’s (Medicaid Prepaid Health Plans) or LHSO’s (Limited Health Services Organizations), are state-approved organizations which accept a capitation for services rendered to Medicaid members. An LHSO can be just about any special state-authorized entity approved to insure a limited risk, i.e., psychiatry HMO, dental HMO, etc.


A Provider Maintenance Organization is a state or federally authorized physician and/or hospital owned entity that owns an HMO. These entities typically enjoy a three year period of not having to come up with the minimum state mandated solvency capitalization required of traditionally licensed HMO’s. They may also enjoy a start up period requiring lower reserve requirements (i.e. In GA a PHSCC, Federally a PSO).

Portfolio Aggregate Reinsurance

Portfolio Aggregate Reinsurance is coverage that responds when the expected claims value on a book or “portfolio” of coverage is exceeds a specified percentage above the Expected claim value, typically between 15%-25%. It is a layer of protection to the primary insurer for a catastrophic year on a specific block of business intended to cap the maximum probable loss on a book of business. Coverage typically responds at 115%-125% of the expected claims value.

POS Plan

A Point Of Service (POS) Plan is a program of commercial or Medicare health insurance which offers the customer two options of how they can receive care-in-plan care and out-of-plan care. In-plan care allows members to save 30-40 percent of out-of-pocket expenses when they receive care from a provider within the panel of approved providers. Point of service plans are designed to provide members greater choice to choose doctors and hospitals which are not on the HMO panel.

Physician Incentive Plan Guidelines

These are federal mandates requiring physician groups with less than 25,000 members to purchase stop loss.

Professional Employer Organizations – PEO’s

A corporation that derives its income from providing traditional Human Resource services (i.e., employee benefits) to a client employer on an outsourced basis. The PEO corporation may be the same employer, and lease the employees back to itself. The PEO can be a completely separate corporation selling their outsourced HR services to multiple employers in the area too. Less expensive liability and health insurance are typically attributes of “leasing” one’s own employees. If the health insurance is to be provided on a partially self funded basis, either an ERISA or MEWA type plan is typically used.


A Provider Sponsored Organization (PSO) is a federal designation given to physician and hospital groups which accept capitation for services rendered to enrolled Medicare members.

Quota Share or (Pro Rata)

Quota Share reinsurance sometimes referred to as “Proportional” or “Pro Rata” is coverage providing a specified percentage of premiums, expenses and claims losses between the primary insurer (ceding company) and the Reinsurer. Risk transfer can assume up to 100% of the total premium risk. It is typically a first dollar coverage, where the reinsurer receives the same percentage of premium as it funds claims.


Reinsurance is an insurance which provides coverage for catastrophic medical charges incurred by a plan member. The three types of medical reinsurance are HMO reinsurance, Workers Compensation reinsurance, and CHAMPUS/Tricare reinsurance. Reinsurance applies to re-insuring an insurance policy.

Run Out

A Run Out is the amount of time after the policy year to notify the carrier of pending claims. New claimants presented after the deadline are ineligible for reimbursement. The Run Out can be significantly affected by the conditions of claim payment at the end of the Run Out term.

Single Employer Trust or Association Health Plan

The association health plan is a self funded ERISA major medical group insurance that is exempt from community rating. Advantages include an advanced aggregate reinsurance coverage, lower agent & TPA fees, favorable experience discounts and other significant savings. Minimum program requirements include 1,000 lives and retention at $50,000. Pooling of first dollar risk among multiple employers is prohibited. Favorable experience is rewarded by refunding unused premium and discounting future premium. A single employer trust offers a middle ground between the higher risk of traditional self funding, and the higher cost of a fully insured benefit while providing a fixed monthly premium easily budgeted by the employer.

Specific Stop Loss/Reinsurance

Specific Stop Loss is insurance which pays for medical charges above a selected deductible for an individual person per policy year.


Steerage refers to managed care procedures that direct members inside a contracted network of providers. Sometimes referred to as repatriation, Steerage also refers to the effectiveness of utilization review functions to get out-of-area members back into the local contracted network. This is especially important to the management of transplant, burn, rehabilitation and neonatal patients.

Stop Loss

Stop loss is an insurance which provides reimbursement for catastrophic medical claims incurred by a self-funded employer’s employee or by a capitated HMO member. There are two primary types of medical stop loss – employer stop loss and provider stop loss (provider excess loss).


Subrogation is the right of recovery of one party against another party. This refers to the rights of the HMO or provider group to recover additional monies from a second insurance policy. In managed care, it refers mostly to an obligation of the provider group to use all legal remedies to repay the reinsurer for any claims paid, and whatever else they can collect.

Surplus Relief or Finite Reinsurance

Surplus Reinsurance is coverage that effectively transfers premium from the primary insurer to the Reinsurer thereby improving capital reserve ratios and financial ratings. Typically, these reinsurance agreements are in the form of a Quota Share arrangement with profit sharing reverting back to the primary insurance carrier for a risk charge. Coverage typically responds at 125%+ of the expected claims value.


Sometimes referred to as a Contract Basis, Term refers to the policy year and claims submission period run-out. A typical stop loss term is for a 12/18 period. Here the policyholder’s claimant has 12 months to accrue the claim, and 6 months after the policy year to report it to the carrier. Policies can be written on either a “Reported” or “Paid” bases. The Reported bases is richer coverage. Other Terms are 12/12, 12/15 and 12/24.

Treaty Reinsurance (Automatic reinsurance)

Treaty reinsurance is reinsurance of specified types or classes of insured exposures that are automatically “ceded”or accepted by the Reinsurer within the terms of the reinsurance contract or “treaty” without evaluation of each individual exposure. The reinsurance takes effect as soon as the primary insurance is sold. Treaty reinsurance is a general term used to discuss several types of coverages that can include profit sharing features.

Uncollateralized Surety Bonds

This type of financial guarantee bond is placed between the capitating HMO and the provider group as a safeguard against insolvency or bankruptcy. Different from the standard types of surety bonds which require 75% collateral, approved provider groups do not have to freeze their assets through an ILC. It is priced at 2% of face.


Disclaimer: This web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.