The risk management process is the process of equating the benefit of risk reduction with the cost of risk reduction at the margin; the point where the two should be roughly equal to reach an optimal level of risk. No risk is so great that it must be 100% eliminated at all costs which is the logic underpinning retaining risks and neutralizing risks versus simply transferring risks. The primary focus is on specific and aggregate stop loss, but also includes alternative risk transfer considerations (i.e., single parent and group captives).



SPECIFIC STOP LOSS


Specific Attachment Point — Plan Year, Calendar Year, Contract Period Dollar Amount
+ Above —  Employer Reimbursed for Covered Losses on Per Member Basis
+ Below —  Employer Retains and Funds Covered Losses on Per Member Basis
Example Illustrates $250,000 Specific Attachment Point
Specific Attachment Point (Orange Horizontal Line)



AGGREGATE STOP LOSS


Aggregate Attachment Point — Plan Year, Calendar Year, Contract Period Dollar Amount
+ Above —  Employer Reimbursed for Losses Below the Specific, in Aggregate
+ Below —  Employer Retains Losses Below the Aggregate, in Aggregate
Example Illustrates an Aggregate Attachment Point
Aggregate Attachment Point (Orange Vertical Line)

RETAIN

• Firm Elects to Finance Rather Than Transfer Losses
• Targeted at Low Severity, High Frequency Claims
• Internal Funds from within Enterprise to Finance Losses
  + Example 1: Advise-to-Pay Arrangement
          – Payroll Administered Short Term Disability Payments
  + Example 2: High Frequency, Low Severity  
          – Dental and Vision Claims with Low Benefit Limits
  + Example 3: Losses Below Risk Transfer Threshold
          – Losses Under Specific and Aggregate Excess Limit
  + Example 4: Alternative Risk Transfer (ART)
          – Single Parent Captive, Group Captive and Rent-a-Captive

NEUTRALIZE

• Process of Reducing Likelihood or Size of Unexpected Losses
  + Example 1: Pre-Authorization and Utilization Review
          – Controls Cost of Services by Eliminating Unnecessary Utilization
  + Example 2: Case Management
          – Outcomes Based Treatment Protocols
          – Proposed Alternative Settings of Care
  + Example 3: Value Based Design + Point-of-Service Management
          – Enhance Benefit to Improve Prescription Drug Compliance
          – Avoid Unnecessary ER Visits and/or Hospital Admissions
  + Example 4: Second, Third and Expert Opinions
          – Preempt Business of Medicine Interfering with Best/Appropriate Care

TRANSFER

• Process of Transferring Adverse Impacts of Risk to Third Party
  + Example 1: Insurance + Prepaid Arrangements
          – Fully Insured Arrangements + Health Maintenance Organizations
  + Example 2: Specific + Aggregate Stop Loss Coverage (Example)
          – Losses Exceeding Certain Dollar Thresholds are Limited
  + Example 3: Non-Insurance Transfers
          – Hold Harmless Agreements, Plan Design Contract/Eligibility Provisions
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