The global pandemic has had a major impact on health claims. In 2020, the Milliman Medical Index (MMI) indicated a decrease in year-over-year health care costs for the first time in history. The decrease in 2020 health care costs can be attributed to individuals who postponed their medical treatments during the peak pandemic years of 2019 and 2020. Their delays, however, exacerbated their medical conditions, resulting in higher costs over the past two years. MMI reported that health care costs for 2021 had increased by 13.2% and it projects costs to grow an additional 4.6% from 2021 to 2022.
For health care plan sponsors and their benefit advisors, consultants and brokers, understanding the current market for medical stop loss insurance is essential. Best's Market Segment Report, "More Self-Insured Plans Drive Stop-Loss Segment Growth", reports that the stop loss insurance segment grew to $25.2 billion in 2020. This report also noted that the number of claims covered by stop loss insurers has grown in tandem with the increasing number of high-cost medical treatments. Greater knowledge and insights into this coverage intended to help contain plan sponsors' health care costs is critical to making the right medical stop loss decisions.
The medical stop loss market today
Based on data reported in the AMWINS Group Benefits and Stealth Partner Group's "Stop-Loss State of the Market Report, June 2022," 64% of covered workers are enrolled in a self-funded plan, with 62% of those plans covered by a medical stop loss policy. The report also noted that total earned medical stop loss premium increased to $26.8 billion in 2021, representing a 4.8% growth rate year-over-year. There are clear drivers of the growth in medical stop loss coverage. The Affordable Care Act introduced increased cost obligations to health care plan sponsors which, in turn, prompted more organizations to become self-insured. When COVID-19 struck, these self-funded plans saw more claims coming from nontraditional sources, such as younger employees, as evidenced by QBE North America's findings that the average age of a claimant had gone from 54 in 2020 to 49 in 2021, concurrent with average claims growing by 87%. Specifically regarding COVID-19-related medical stop loss claims, QBE reported that they increased by 108% from 2020 to 2021. The claims were attributable to a broader cross-section of ages with youngest age group (0-29) having increased five-fold, and this age group along with those aged 30-39 having claims through April 2022 reaching levels similar to all claims in 2021.
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In addition to the pandemic, other drivers of medical stop loss claims include the most expensive medical conditions, such as cancer, for which treatments comprise 30% of all stop loss reimbursement, at a value of $1.5 billion over the past four years according to the AMWINS Group Benefits and Stealth Partner Group's "Stop-Loss State of the Market Report". Also included are heart disease, kidney disease, congenital birth defects and septicemia infections, along with the high-cost specialty drugs used to treat them.
To illustrate the high costs associated with specialty drugs, Tretinoin, which helps manage leukemia-related complications, costs $6,800 a month. Other specialty drugs range in costs from $100,000 to $750,000 annually, based on Commonwealth Fund data. A new treatment for spinal muscular atrophy, the injectable drug Zolgensma, has one of the highest average claim costs at $2.2 million per member. On average, plan sponsors incur annual costs of $38,000 to cover a single member's specialty drug costs versus $492 per year for members using non-specialty drugs. It is important to note that health care claims follow the 80/20 rule in that 20% of those covered are responsible for 80% of the costs.
Impacts on plan sponsors and carriers
Having access to medical stop loss insurance significantly limits a self-insured employers' exposure to high-cost health care claims. Many of these employers would suffer serious financial consequences without this coverage, given the potential impact a single high-cost claim can have. These plan sponsors are putting pressure on stop loss carriers to provide greater rate flexibility, increased policy customization and faster claims settlement. Some carriers are deploying more capital in the market in order to offer more competitive rates for good risks. Still, there are other carriers that are increasing their stop loss rate caps, and using a technique called lasering, wherein certain plan participants with specific conditions are assigned a higher deductible than others in the plan, as well as introducing exclusions for high-cost specialty drugs and procedures.
Securing the right stop loss coverage
When advising clients on the best medical stop loss coverage for their organization, benefit consultants/advisors should recognize that there are two types of coverage: specific and aggregate stop loss. Specific stop loss, also referred to as individual stop loss, is an excess risk coverage that provides protection for a plan sponsor against a high-cost claim on a single individual. In contrast, aggregate stop loss provides a top limit on the total dollar amount of eligible expenses that a plan sponsor would pay over the contract period. When the contract period ends, the stop loss carrier would reimburse the plan sponsor for all aggregate claims.
When deciding which types of coverage to purchase, considerations should be given to the organization's historical claims data, demographics of the plan members, specifically as they relate to their current medical conditions, as well as their ages and overall health status. Criteria to consider include whether there are plan members with high-cost medical conditions and/or chronic health conditions, some of which require high-cost specialty drugs. The rise in high-cost specialty drugs, as well as cell and gene therapies, should also be recognized.
Member groups that can better assess and predict their claims patterns will often rely on specific coverage. This, of course, varies greatly depending on their other criteria (i.e., historical claims data, current plan members' medical conditions and health status, age, etc.). Another factor to consider includes whether or not the organization has minimal or ample cash reserves to withstand a high-cost claim, should that occur.
When selecting a source for medical stop loss coverage, recognize that direct writers of stop loss coverage can offer greater rate flexibility, flexible claims basis (i.e., wider range of run-in, run-out and paid options), higher limits of liability, specific and aggregate policy extensions, and accommodations that perhaps other commercial insurance providers cannot. Further, direct stop loss writers can offer discounts for a plan sponsor's use of high-performance preferred provider organizations (PPOs), third-party medical claims administration, and medical management services. Additionally, they typically have greater access to high quality organ transplant networks, offer more timely disclosure decisions, and faster claim paying.
An opportunity for advisors, consultants and brokers
Professionals advising plan sponsors on their insurance and benefits are well-served to guide their clients' decision when it comes to medical stop loss coverage. Stop loss coverage has become steadily more important in today's health care market of increasing incidences of catastrophic and chronic health conditions, high-cost specialty drugs and other advanced medical treatments, and the unexpectedness that a global COVID-19 pandemic and its continuous stream of variants has introduced.
John Thornton is executive vice president, Amalgamated Life Insurance Company, (www.amalgamatedbenefits.com), a leading provider of comprehensive insurance solutions with 47 consecutive "A" (Excellent) ratings from A.M. Best Company.
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