Claims Run-Out

Claims run-out is the period after a self-funded plan ends or changes administrators during which claims for services that happened before the change keep arriving and still have to be paid. Run-out usually lasts three to twelve months, and the money to pay those claims is the terminal liability.

This is the bill that surprises companies leaving self-funding or switching TPAs. A plan that terminates on December 31 will still receive claims for December services well into the following spring, and the old administrator will charge a run-out fee, often two or three months of its regular PEPM, to keep processing them. If the plan moves to a fully-insured carrier on January 1, the new carrier doesn't cover the old claims; the employer does. For a 300-employee plan, terminal liability can be $600,000 or more. Stop-loss contracts also matter here: a "paid" contract that ends December 31 won't reimburse a large claim paid in February for a November service unless the employer bought run-out or terminal liability protection.

The takeaway: before changing funding or administrators, get the run-out fee, the terminal liability estimate, and the stop-loss run-out terms in writing. The cheapest switch on paper is often the one that forgot these three numbers.