The Importance of Reinsurance, Per Adam Gottesman of HM Insurance Group

To listen to more episodes featured on Tuning Into The C-Suite, visit us on Spotify, Apple Podcasts and iHeartRadio.

Below is a brief Q&A of the interview with Gottesman, which has been edited for clarity.

Q: Most of our readers and listeners are familiar with a stop loss insurance. So first, could you explain the difference between medical reinsurance and stop loss? And then secondly, is reinsurance completely different from stop loss? Or is it a broader category that includes stop loss?

A: Essentially, they are similar in concept. So what you're doing is protecting an underlying risk taker from catastrophic financial exposure to a particular claim. So, whoever the risk taker is, in the case of employer stop loss, ESL, which we're most familiar with, it's almost always an employer group who's self insuring their health plan. So it's just for one employer group. It really goes back to how comfortable they are with their balance sheet, what type of Stop Loss Coverage they're willing to access at what deductible level; so it's almost always specific to just a single employer. That employer group is being administered by a third party claim payer of some sort. It could be it could be a number of entities that are administering the claim. So in the case of medical reinsurance, it's broadly based into three different categories. Broadly, based in sense that an HMO is one risk-taking entity we would reinsure.

The second broad category is a physician group or provider group. Also, that segment is typically referred to as provider access. Thirdly, there's a category called medical access. Medical access is simply an underlying risk insurance company of some sort that's limiting, or wants to limit their own exposure to something they wouldn't have written. It could be, for example, a stop loss carrier, or someone like a stop loss carrier putting risk into captive. And then they're asking us to reinsure that captive at a certain level. So those are the three broad base categories of HMO provider and medical access.

Q: What are the key determinants for the coverage need for medical reinsurance?

A: Key determinants are almost always "What's the financial risk tolerance for the underlying entity?" "What can they tolerate based on the size of their balance sheet and what does their CFO think is adequate coverage for the risk they're assuming?" So it's interesting to see the differences and HMO, for example, can manage their own risks quite well, because they're actually performing the services themselves when they're in network and within their own facilities.

So you may see an HMO saying, "Hey, we can take coverage on our entire patient population, when it's in network, or within our system have a certain high retention or high deductible." And if it does leak out to a specialty facility of some kind, then we'd be less comfortable with that and we'd structure our risk accordingly. Same is true for provider groups. Providers sometimes take risk on a very specific basis from these managed care organizations that they are receiving patients from. So they may want to, and in a lot of cases, these are things people don't see. But there's something called a doper, which is simply a deal for delegation of financial responsibility.

The construct of a of a provider risk contract can get quite detailed. It may be just on inpatient services, it might be on a specific type of care. It might be for a specific patient class, it could be Medicare, it could be Medicaid, or it generally could be on a commercial population, which in those categories, commercial population patients are much more subjected to large dollar swings because there is the underlying Medicare fee schedule.