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Insurance Abstract
A method for optimizing insurance estimates for an insurance plan
includes ascertaining the number of insured units to be covered
by the plan, and obtaining premium quotes from an insurance carrier,
the premium quotes corresponding to the number of insured units
and to a plurality of cap levels of the plan. The method further
includes obtaining statistical loss data for the insured units and
applying the obtained statistical loss data to each of the cap levels.
Insurance Claims
1. A method for optimizing insurance estimates for an insurance
plan, said method comprising the steps of: ascertaining the number
of insured units to be covered by said plan; obtaining premium quotes
from an insurance carrier, said premium quotes corresponding to
said number of insured units and to a plurality of cap levels of
said plan; obtaining statistical loss data for said insured units;
and applying said obtained statistical loss data to each of said
cap levels.
2. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 1, further comprising the steps of:
utilizing statistical loss data that reflects demographic data for
said insured units.
3. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 2, wherein: said insured units include
individual and family insured units.
4. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 1, wherein: said insurance plan is
a self-insurance plan.
5. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 4, wherein: said cap levels of said
self-insurance plan are stop-loss cap levels.
6. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 1, further comprising the steps of:
analyzing an incidence of claims exceeding each of said cap levels,
in conformance with said obtained statistical loss data.
7. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 6, further comprising the steps of:
determining a potential cost of said claims exceeding each of said
cap levels.
8. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 7, further comprising the steps of:
comparing said premiums for each of said cap levels with said determined
potential cost of said claims that exceed each of said cap levels.
9. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 8, further comprising the steps of:
selecting one of said cap levels of said insurance plan in dependence
upon said comparison of said premiums for each of said cap levels
and said determined potential cost of said claims that exceed each
of said cap levels.
10. A method for optimizing insurance estimates for an insurance
plan, said method comprising the steps of: ascertaining the number
of insured units to be covered by said plan; obtaining a first premium
quote from a first insurance carrier, said premium quote corresponding
to said number of insured units and to a first predetermined cap
level of said plan; obtaining statistical loss data for said insured
units; and applying said obtained statistical loss data to said
cap level.
11. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 10, further comprising the steps of:
obtaining a second premium quote from a second insurance carrier,
said premium quote corresponding to said number of insured units
and to a second predetermined cap level of said plan, said first
predetermined cap level being different from said second predetermined
cap level.
12. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 11, further comprising the steps of:
utilizing statistical loss data that reflects demographic data for
said insured units.
13. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 12, wherein: said insured units include
individual and family insured units.
14. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 10, wherein: said insurance plan is
a self-insurance plan.
15. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 14, wherein: said cap levels of said
self-insurance plan are stop-loss cap levels.
16. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 11, further comprising the steps of:
analyzing an incidence of claims exceeding each of said first and
said second cap levels, in conformance with said obtained statistical
loss data.
17. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 16, further comprising the steps of:
determining a potential cost of said claims exceeding each of said
first and said second cap levels.
18. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 17, further comprising the steps of:
comparing said premiums for said first and said second cap levels
with said determined potential cost of said claims that exceed each
of said first and said second cap levels.
19. The method for optimizing insurance estimates for an insurance
plan in accordance with claim 18, further comprising the steps of:
selecting one of said first and said second cap levels in dependence
upon said comparison of said premiums for said first and said second
cap levels and said determined potential cost of said claims that
exceed each of said first and said second cap levels.
20. A method for optimizing insurance estimates for a stop-loss
insurance plan, said method comprising the steps of: ascertaining
the number of insured units to be covered by said stop-loss insurance
plan; obtaining premium quotes from an insurance carrier, said premium
quotes corresponding to said number of insured units and to a plurality
of cap levels of said stop-loss insurance plan; obtaining statistical
loss data for said insured units; applying said statistical loss
data at each of said cap levels to determine an incidence of claims
exceeding each of said cap levels; and selecting one of said cap
levels of said stop-loss insurance plan in dependence upon said
comparison of said premiums for each of said cap levels and said
determined incidence of said claims that exceed each of said cap
levels.
Insurance Description
FIELD OF THE INVENTION
[0001] The present invention relates to a system and method for
optimizing insurance estimates. Specifically, the present invention
involves a system and method for calculating expected losses of
a group of potential insureds, and the projected savings for at
least two stop-loss cap levels, to thereby assist employers in selecting
an appropriate cap level when selecting stop-loss insurance.
BACKGROUND OF THE INVENTION
[0002] Employers obtain health insurance funding in one of two
ways. Employers may be either fully insured or self-insured. Fully
insured employers pay a monthly premium to an insurance carrier
to cover their employees' medical expenses. Being fully insured
offers employers several benefits including known premiums that
may be included in a budget, minimal financial risk and ease of
plan administration.
[0003] Many employers, however, choose to self-insure rather than
purchase group insurance plans to minimize their expenses. These
employers typically set aside funds from which employees and their
families are reimbursed for their medical expenses. Self-insured
employers usually hire an administrator to process their employees'
claims. While self-insurance is often an excellent cost-saving measure,
it exposes employers to a high level of financial risk. If an employee
incurs unexpectedly high medical expenses, an employer's medical
reimbursement funds may be exhausted.
[0004] Stop-loss insurance minimizes this financial risk by reimbursing
employers for medical expenses that exceed a certain deductible
threshold, often referred to as a cap level. There are two types
of stop-loss insurance, aggregate and specific. Aggregate stop-loss
insurance reimburses an employer when all claims exceed an agreed
upon cap level, typically described as a monthly amount per single
employee and employee with family. The cap is usually expressed
as a percentage of expected claims.
[0005] With specific stop-loss insurance, the carrier reimburses
the employer when claims for an individual exceed a specified cap
level in a plan year. The carrier reimburses the employer for the
remainder of the plan year. Specific stop-loss insurance has different
rates for single employees and for families. The rates are lower
the higher the cap level at which the carrier begins reimbursing
the employer.
[0006] While stop-loss insurance reduces financial risk for self-insured
employers, it is an added expense. Therefore, employers contemplating
such insurance must perform a detailed analysis to determine whether
the benefit justifies the cost. Performing such an analysis, however,
is often difficult as stop-loss insurance carriers do not provide
expected losses to the employer. Stop-loss insurance carriers simply
quote prices for different cap level, e.g., $50,000, $60,000 or
$70,000 leaving the employer to determine whether self-insurance
is the best option and, if so, the appropriate cap level of stop-loss
insurance.
[0007] In light of the above, there exists a need for a source
of factual information based on historical loss data which may be
used by employers to select the appropriate cap level of stop-loss
insurance. The present invention fulfills these needs and more.
SUMMARY OF THE INVENTION
[0008] It is an object of the present invention to provide a system
and method of optimizing insurance estimates that offers potential
insurance purchasers information on the group to be insured from
which they can make an informed decision as to an appropriate type
and level of insurance coverage.
[0009] It is another object of the present invention to provide
a system and method of optimizing insurance estimates that offers
self-insured employers information based on historical insurance
loss data which they can make an informed decision as to an appropriate
cap level of stop-loss insurance coverage.
[0010] It is an additional object of the present invention to provide
a system and method of optimizing insurance estimates that utilizes
historical insurance loss data to determine a potential insurance
purchaser's expected losses at various cap levels of stop-loss coverage.
[0011] It is yet another object of the present invention to provide
a system and method of optimizing insurance estimates that utilizes
computer software to calculate projected savings based on expected
losses and the cost of annual premiums at various cap levels of
stop-loss coverage and provide such information to potential insurance
purchasers.
[0012] In accordance with a preferred embodiment of the present
invention, a method for optimizing insurance estimates for an insurance
plan includes ascertaining the number of insured units to be covered
by the plan, and obtaining premium quotes from an insurance carrier,
the premium quotes corresponding to the number of insured units
and to a plurality of cap levels of the plan. The method further
includes obtaining statistical loss data for the insured units and
applying the obtained statistical loss data to each of the cap levels.
[0013] These and other objects and advantages of the present invention
will become readily apparent upon further review of the following
drawings and specification.
BRIEF DESCRIPTION OF THE DRAWINGS
[0014] FIG. 1 is a schematic of one possible system, according
to one embodiment of the present invention.
[0015] FIG. 2 is a flowchart illustrating the steps of an insurance
optimizing method, according to one embodiment the present invention.
[0016] FIG. 3 is a flowchart illustrating the steps in determining
projected savings to an employer of a group of potential insureds,
in accordance with an insurance optimizing method of the present
invention.
[0017] FIG. 4 is a table illustrating projected savings at multiple
stop-loss cap levels according to an insurance optimizing method
of the present invention.
[0018] FIG. 5 is a screen display depicting one possible implementation
of an insurance optimizing method according to the present invention.
[0019] FIGS. 6-31 are additional screen displays depicting the
implementation of the insurance optimizing method of FIG. 5.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT
[0020] As shown schematically in FIG. 1, a system in accordance
with an embodiment of the present invention includes a computer
2 and at least one database of insurance loss statistics 4. As discussed
in greater detail below, the computer 2 contains software that calculates
an employer's expected losses from historical loss statistics and
compares the expected losses at each cap level of stop-loss insurance
to annual premiums at each level. As will be appreciated, the insurance
loss database 4 may be resident on the computer 2 or may be accessible
via a network such as the Internet.
[0021] The insurance loss database 4 contains historical loss statistics.
The statistics may include age, sex, geographic location, occupation
and other relevant statistics of individual loss incurring insureds
at well as the amount of each loss. The statistics also include
whether the loss incurring insured was a single insured or family
insured, referred to herein as single or family insured units. Third
party companies typically compile these statistics. As will be appreciated,
the loss statistics may be carrier specific or may be general industry
statistics and may be an annual compilation or may represent a greater
time period.
[0022] FIG. 2 is a flow chart indicating steps of a method of the
present invention in optimizing stop-loss insurance estimates. Initially,
the number of single and family insured units within the group of
potential insureds is ascertained, as noted at 30. Determining the
number of insured units is important in that premium costs differ
between single and family insured units and most annual premiums
are based on the numbers of each type of insured unit. Once the
number of each type of insured unit is ascertained, the self-insured
entity, also referred to as the employer, obtains a quote for annual
premiums for stop-loss insurance as noted at 32. As will be appreciated,
the self-insured entity may obtain a quote through a stop-loss insurance
broker or directly from an insurance carrier.
[0023] The quote must contain annual premiums for at least two
cap levels of stop-loss insurance so that a comparison between the
cap levels can be made. As mentioned above, the cap levels are the
levels above which an insurance carrier must reimburse a self-insured
entity for an insured unit's medical costs. Generally, the lower
the cap, the higher the annual premium. Typically, such quotes will
contain three cap levels. As shown in FIG. 4, and as will be appreciated,
these cap levels 20 may increase by $10,000 or another amount.
[0024] The quotes may also contain a cap level that includes a
retro payment, also referred to an aggregating specific quote. These
cap levels typically require the self-insured entity to make an
additional aggregate payment above a cap level before the carrier
begins reimbursement for an individual exceeding the cap level.
For example, a cap level of $40,000 with a $5,000 retro payment
requires the employer to pay $40,000 of an individual's medical
expenses plus $5,000 before the carrier begins reimbursement. However,
multiple insured units may cumulatively satisfy the $5,000 payment
and the retro payment is therefore aggregate. Additionally, the
employer only need make the retro payment once and, after it has
been satisfied, the employer only pays up to the cap level i.e.,
$40,000.
[0025] Returning to FIG. 2, after the annual premiums for at least
two cap levels have been quoted, a database of historical loss statistics
must be selected as noted at 34. The loss statistics may be carrier
specific or may be general industry statistics. As discussed in
greater detail below, the loss statistics are utilized to determine
the number of expected claims over each cap level.
[0026] Once the loss database 4 has been chosen, the number of
insured units whose annual medical claims exceeded each of the quoted
cap levels is ascertained. Alternatively, statistics from the loss
database may be selected based on the demographics of the group
of potential insured units. That is, the number and amount of medical
claims for insured units that are demographically similar to the
group of potential insured units may be assessed.
[0027] After the database of loss statistics 4 has been selected
and the number of insured units over the cap levels has been ascertained,
the number of expected losses for each of the cap levels is determined
as noted at 38. In this step, the number of expected insured units
exceeding the cap levels, obtained from the loss statistics, is
expressed as per 1000 insured units.
[0028] Step 38 is a critical aspect of the present invention. Stop-loss
carriers and brokers today do not estimate expected losses at the
various cap levels when providing quotes for stop-loss coverage.
Stop-loss insurance carriers simply quote prices for different caps,
e.g., $50,000, $60,000 or $70,000 leaving the employer to determine
the appropriate level of stop-loss insurance. By utilizing historical
loss data, the present invention facilitates the selection of an
appropriate cap level of stop-loss insurance.
[0029] When the expected losses have been determined, this data
is used to ascertain the projected savings at each cap level as
recorded at 40. The projected savings represents the dollar amount
that the self-insured entity would likely save for each cap level
over the cap level with the highest annual premium. This is an additional
important aspect of the present invention in that it allows employers
to see projected dollar savings for the various cap levels based
on the demographics of their employees. Thus, the employer can choose
an appropriate cap level for its stop-loss insurance. As mentioned
above, stop-loss carriers and brokers do not perform such an analysis
or provide this information to employers.
[0030] As noted at 42 and 44, once the projected savings at the
various cap levels has been determined, the data is then presented
to the employer of the group of potential insured units. The employer
can then make an informed selection of an appropriate stop-loss
cap level.
[0031] Turning now to FIG. 3, the steps by which the projected
savings for a certain cap level is determined are described in greater
detail. As noted at 46, the number of expected losses is first ascertained.
This is the number of insured units whose annual medical care costs
exceeded each cap level per 1000 insured units. Using the expected
losses per cap level, the number of expected losses that exceed
a lower cap level but do not exceed a higher cap level whose projected
savings are to be assessed, are determined as noted at 48.
[0032] As noted at 50, the dollar amount of additional claim payments,
over the lower cap level, is determined for the higher cap level.
To determine additional claim payments, the number of insured units
whose claims exceeded the lower cap level but did not exceed the
higher cap level is multiplied by the dollar difference between
the lower and higher cap levels. Additionally, any required retro
payment would be factored in as well. So, the expected losses over
the cap level requiring a retro payment are multiplied by the amount
of the retro payment. This sum is then added to the product of the
number of insured units whose claims are above the lower cap level
but are under the higher cap level and the dollar difference between
the lower and higher cap levels. In this way, the expected retro
payments are factored into the amount of additional claim payments
for the higher cap level.
[0033] Turning to step 52, the expected additional claim payments
for the higher level is subtracted from the dollar difference between
the premium costs for the lower and higher cap levels. This results
in the projected savings for the higher cap level.
[0034] Detailed examples of how these steps are executed are found
in FIGS. 5-31, which show one implementation of a method of the
present invention. The specific implementation depicted in the screen
displays 60 of FIGS. 5-31 is a MICROSOFT EXCEL.RTM. spreadsheet.
FIGS. 5-31 depict the required information that must be entered
into the implementation to determine projected savings. The figures
also depict the formulae utilized to determine additional claims
and projected savings. As will be readily appreciated, other implementations
are possible such as, but not limited to, hand calculations utilizing
the previously discussed demographic data and the like.
[0035] Turning now to FIGS. 28-31, to determine the projected savings
for a cap level of $50,000 over the more expensive cap of $40,000,
the number of expected losses per one thousand insured units that
exceed $40,000 but do not exceed $50,000 must be determined. As
will be appreciated, this is accomplished by subtracting the expected
losses exceeding $40,000 from the expected losses exceeding $50,000.
As shown in FIG. 28, this is the difference between the expected
losses per 1,000 insured units at $40,000--5.00798715-- and the
expected losses per 1,000 insured units at $50,000--3.548815362,
i.e., 1.4592. This number of expected losses is then multiplied
by the difference between $40,000 and $50,000 i.e., $10,000, to
determine expected additional claim payments at the higher cap level.
Thus, $10,000.times.1.4592=$14,592. So, an employer could expect
to pay $14,592 if it selects a cap level of $50,000 over the cap
level of $40,000. To determine projected savings at this cap level,
the additional claims payments are subtracted from the difference
in the annual premiums for the two cap levels. Therefore, $14,592
is subtracted from $29,462 which yields a projected savings of $14,870.
[0036] It will be readily appreciated that while the system and
method of the present invention has been described in connection
with analyzing multiple insurance premium quotes from a single insurance
carrier at differing stop-loss cap levels, the present invention
is not so limited in this regard. That is, the system and method
of the present invention may be equally applicable to the analyzing
of insurance premium quotes from multiple insurance carriers at
differing stop-loss cap levels. Thus, the system and method of the
present invention may utilize statistical loss data for the insured
units in order to compare the insurance premiums for insurance plans
offered by different insurance carriers, each of the insurance carriers
offering premiums for differing stop-loss cap levels.
[0037] As recited above, the system and method of the present invention
permits a factual basis upon which to base a determination as to
the best insurance plan (that is, the most appropriate cap level)
to purchase, in consideration of historical or statistical loss
data. This analysis is equally capable of clarifying the choice
between differing cap levels offered by the same insurance carrier,
or of clarifying the choice between a first cap level offered by
a first insurance carrier, with that of a second cap level offered
by a second insurance carrier.
[0038] Although the present invention has been described with reference
to preferred embodiments, it will be appreciated by those of ordinary
skill in the art, that various modifications to this invention may
be made without departing from the spirit and scope of the invention.
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