Module 4
Protecting the Downside
A single catastrophic case can erase a year of savings. Stop-loss, reinsurance, and risk corridors keep variance from becoming insolvency.
By the end of this module, you will be able to:
- Explain why small populations cannot absorb catastrophic variation on their own
- Choose a stop-loss attachment point that fits an organization's capacity to absorb loss
- Distinguish risk corridors from risk adjustment by what each protects against
- Why Risk Needs Limits A single catastrophic case can erase a year of savings. This lesson explains why risk-bearing organizations, especially small ones, need protection. About 4 min
- Stop-Loss and Reinsurance Stop-loss caps the damage a catastrophic case can do. This lesson covers specific versus aggregate protection and the attachment point that defines it. About 5 min
- Risk Corridors and Risk Adjustment Two different tools with similar names. This lesson separates risk corridors (limiting how far results swing) from risk adjustment (matching payment to illness). About 5 min
Module quiz
Answer all questions to see your score.
1. Why is a small risk-bearing organization more exposed to a catastrophic case than a large one?
The law of large numbers makes big populations predictable; a single transplant or NICU stay lands much harder on a small group.
2. In a stop-loss arrangement, the attachment point is:
Like a deductible, a lower attachment point transfers more risk at a higher premium; a higher one retains more risk more cheaply.
3. How do risk corridors differ from risk adjustment?
Risk adjustment protects against the wrong population; corridors protect against a bad year. They act at different stages and are usually combined.