The stop loss market continues to harden with high loss ratios and an 86% increase in catastrophic claims over the past four years. The overall effect of COVID-19 on the stop loss market remains unknown despite the fact that large numbers of COVID-19 claimants never materialized. Cases running well continue to have access to favorable contract provisions, but we expect pending specialty drug approvals, emerging gene therapies and COBRA provisions related to the pandemic will impact rates well into the coming year.
Market growth and high loss ratios have been the norm for the past 12 months. In 2019, NAIC data showed the market grew more than 20%. Most of this growth was directly related to the top 10 direct stop loss writers and the BUCA carriers. At the same time, the overall loss ratio was over 80% – the highest it has been in more than 10 years.
State of the Stop Loss Market
Capital has continued to flow into the market, artificially holding prices lower for well-performing groups despite the ongoing increase in $1M claims. For groups with marginal to poor performance, finding a new carrier to accept ongoing risk has been difficult, especially for smaller groups with premiums under $500K.
Sun Life Financial reports an 86% increase in high-dollar claims over the past four years. And, with new gene therapy drugs coming to market, this rise is expected to continue into 2024. Effective discounts from the BUCA PPOs on facility claims remain lower than expected. Consequently, claims are being scrutinized for validity and appropriateness
High cost claims are not always predictable. Whether covering claims above a certain dollar amount on individuals on the medical plan with Specific stop-loss or also covering unexpected costs across a group of employees with Aggregate coverage, stop-loss insurance reimburses the employer for the portion of the claim that exceeds the stop-loss deductible. It is a critical consideration for self-funded employers that want to limit the risk associated with their medical plan and create a self-funding strategy that works with their business.*
Below, we take a look at five of the top high cost claim conditions paid out between 2016-2019*
86% of employers have a Stop-Loss claim in any given year.
Aggregate claims are down significantly due to COVID-19 restrictions currently in place
Despite the fact catastrophic claims are still occurring, many carriers do not regard current claims as credible predictors of future performance. They have shown an unwillingness to lock in attachment factors without 10 months of data, proving especially difficult as BUCAs are already limiting how claims data can be used by carriers from an underwriting and pricing perspective.
Carriers are also concerned about a significant claim rebound following the pandemic as elective procedures resume. As a result, they are often less willing to go below a 125% aggregate corridor. Carriers continue to rely on two or three commercial “manuals,” but are making significant adjustments to utilization assumptions and network discounts as the pandemic rages on.
Specific claims volumes are down slightly due to the delay in elective procedures and standard care
With the drop in preventive and elective treatments, many carriers fear that hospital systems and facilities will increase pricing to make up for lost revenue. Clients in areas served by large, well-organized hospital systems can expect higher claims and even more aggressive billing practices in the coming year.
According to one major network CEO, providers are reporting losses that will result in double-digit increases in 2021. Fee for service arrangements will be more expensive, direct costs for inventory of critical supplies will be passed on and a return of demand will lead to higher prices overall.
While the effect of COVID-19 on the stop loss market is still relatively unknown, the fear of plans experiencing large numbers of COVID-19 claimants has not materialized. Carriers are putting much more weight on 2018-2019 claims and trending them forward versus the traditional approach of using the current plan year’s claims.
Enrollment levels are also playing a larger role in determining renewal rates. Many carriers are asking if the employer has experienced a reduction in enrollment of at least 15% since March 1, 2020. If so, they also want to know the following:
COVID-19 relief legislation
Stimulus packages in support of the COVID-19 relief act stalled in Congress recently, with both houses breaking for the August recess locked in a stalemate. With a lack of bipartisan support to meet and conduct business prior to Labor Day, legislative changes are not expected until later this year.
Talks are expected to resume in September and legislation to create a money flow to employers to assist in covering healthcare costs of the unemployed may result in changes to the above.
Pending drug approvals, including emerging gene therapies, will impact lasers
Lasers are not new to stop loss. However, with the increasing number of gene therapy drugs in the approval pipeline, we fully expect to see more “if” lasers generated. For example, if a hemophilia patient is prescribed and administered a new gene therapy drug, the existing laser could increase by more than $1.5M. Similarly, spinal muscular atrophy claimants may have additional lasers assigned if the government approves the drug for anyone over the age of two.
COBRA provisions are unavoidable
New, pandemic-related COBRA rules have resulted in adverse selection for some groups. However, the need for open-ended COBRA provisions is unavoidable.
Whether it is an increase in claimants that may be excluded at renewal or more contingent lasers on those same claimants, it’s critical to provide the carrier with an up-to-date census. Be sure to include current and potential COBRA participants (i.e., those that are in the COBRA election period even if they haven’t considered electing at this time).
If the employer has experienced a reduction in enrollment, carriers will also need to know if the employer is continuing benefits. Employers should provide a timeline for how long the eligibility exception will remain in effect before the benefits are terminated and the employee is offered COBRA. If the company is terminating benefits as a result of bankruptcy, COBRA would not be a factor.
As mentioned earlier, any COVID-19 relief legislation may result in changes to existing COBRA provisions.
Cases running well continue to have access to favorable contract provisions
Based on the hardening market, we continue to see large variations in rates between carriers on individual cases. And while many markets are still looking for cases that are running well, changing carriers for a small savings may not be prudent. Here’s what to look for:
Early lock-in dates, including the option to lock in specific with attachment factors to follow at a later date, is also something we expect to see this renewal season.
Stealth Partner Group provides you with instant access to more than 150 years of collective stop loss insurance experience—along with the extensive knowledge, established relationships, and proven processes and results that go with it.
Combined with our strong cost containment protocols, Stealth can help mitigate rising claims costs on your behalf. Below are just some of the tailored solutions we employ to meet your needs and ensure you gain the most value out of our partnership.
With uncertainty in the market and the overall effect of COVID-19 still unknown, rates which for some groups had been artificially low in 2019 are expected to rise. Pending drug approvals, emerging gene therapies and COBRA provisions related to the pandemic will also continue to impact rates well into the coming year.
Reinsurers do not appear to be making pricing decisions based on current business trends, especially as an increase in front-line claims has yet to materialize. That’s why stability in your stop loss plan during this time is paramount. Relationships matter in our industry and, while are seeing flight towards the largest, strongest and most well-capitalized claim paying carriers, making a move now may not be prudent.
We recommend partnering with a group like Stealth. During uncertain times like these, you will want to take advantage of our deep experience, robust market relationships, superior service and strong cost containment protocols to obtain preferred access to the most agile, direct writers for your clients.
At the same time, we can help you avoid potential E&O exposure – eliminating timely filing issues, reviewing disclosures and providing an extra layer of attention when you need it most. Let us deliver the solutions and options you need to mitigate rising claims costs.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
(c) 2017 AmWINS Group, Inc.