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Board declines extra stop-loss reinsurance and approves Blue Shield stabilization amortization
Summary
Aon Hewitt advised against buying additional external reinsurance for 2018, citing contingency reserves and stabilization policy; the board also approved a Blue Shield stabilization reserve amortization that adds $3,544,812 to 2018 rates across tiers. Both measures passed unanimously.
The Health Service System board heard back-to-back actuarial presentations from Anil Kocher of Aon Hewitt on reinsurance needs and Blue Shields 2016 experience. On reinsurance, Kocher explained that the trust already holds contingency reserves and has a stabilization policy and embedded stop-loss arrangements (for example, Blue Shield has a $1,000,000 individual cap in the flex-funded arrangement). "We recommend no additional external reinsurance is required," Kocher said, adding that additional reinsurance would likely be redundant given the current balance-sheet reserves.
On Blue Shields non-Medicare claims experience, Kocher credited a $9,934,909 hit-tax refund that shifted cash back onto the trusts balance sheet and materially improved 2016 results, producing an adjusted loss ratio of 98.64% after the rebate. He warned, however, that the December adjustment skews the annual number and that prior months averaged above 100%.
For rate stabilization, Kocher proposed amortizing the programs remaining deficit/gain over three years. He said the net effect after adjustments would require adding $3,544,812 across all rating tiers for the 2018 Blue Shield HMO plan to satisfy the established stabilization policy. After discussion and clarifying questions about stop-loss credits and contingency reserve figures, the board voted to accept Aons recommendation to decline additional external reinsurance and separately approved the Blue Shield stabilization amortization, both by unanimous vote.
The stabilization decision directs staff to incorporate the amortization into the Blue Shield rate tables for 2018 and to present details on revised stabilization reserves in a forthcoming report.
