We have a self-insured plan with stop loss coverage. We are changing our contractual plan year so that everything is on a calendar year. Our current stop loss contract expires 8-31-02. Our TPA/Broker has secured OK from the stop loss carrier to write a 16-month contract, effective September 1, 2002 through December 31, 2003. This is in contrast to doing a four month contract, then coming back January 1, 2003 with another contract. The carrier is not willing to extend our current contract for an additional four months.

It is my understanding that the advantage to doing this 16-month contract is that the reinsurers are working off the "old manuals" at this point to determine rates. Our broker states that inflationary trends are being figured currently at about 1.12% per month, 12% - 14%. There is every reason to believe this trend will increase. So that might be a second advantage to doing the 16-month contract.

I cannot at this point see any reason not to do the 16 month contract. Is there anything that I might be missing? Any additional important questions I should be asking?

Doing a 16-month contract is a good idea simply because the stop loss market is a mess right now because of what happened on 9/11. A lot of the carriers that handle stop loss insurance rely on re-insurers and the re-insurers are the companies that took a bath last fall, thus some pretty significant renewal increases are coming out. If the renewal increase seems in-line, I would go with the 16-month guarantee.

Reinsurance markets are tightening up every day as capacity lessens. A 16th month contract with a reputable carrier is a great option.

Not that familiar with medical stop loss, but on other lines I've seen annual policy limits. You may not want to risk having the equivalent of a 12 month policy limit covering a 16 month period.