The role of stop loss is simple: to serve as a shield for catastrophic claims, protecting self-insured employers from being stuck with unexpectedly high medical costs.
The goal of self-insuring is equally simple: to lower the costs of providing healthcare insurance. It’s a popular option for good reason, as it tends to work pretty well. But recent studies are increasingly showing that employer-sponsored health plans are rising in costs—which in turn, means that stop loss premiums are rising as well. According to a recent Aegis Risk Medical Stop-Loss Premium Survey, individual stop loss premiums have increased by 7% to 16% or more from 2021 to 2023.1 Of the study’s respondents, one-fourth reported catastrophic claims in excess of $1 million in the past two years. Around 7% of those claims were in excess of $2 million.1
Known as a leveraged trend, this dynamic, according to the report, “occurs as the underlying increase in expense of a catastrophic medical claimant is fully borne by an unchanged stop-loss deductible from year to the next.”1
And it isn’t a contained trend, either. According to a separate study in 2022, medical stop loss premiums were up by 10%, with common stop loss insurance deductibles up by nearly $50,000 from the previous year.2 High-cost claims are on the rise, and they don’t seem to be slowing down anytime soon. So the question stands: how to curb these costs?
Mitigating Risk: Strategies for Bringing Down Costs
Captives
One potentially effective strategy is to take advantage of the captive insurance arrangement. Group captives has become an increasingly popular option, giving employers who wish to self-insure a considerably less risky option. By banding together and splitting the risk amongst themselves, participants in a captive arrangement are able to create a risk cushion for themselves, so to speak. The larger risk pool not only allows for risk mitigation and lower costs, but it also gives employer groups more negotiating power—all while successfully self-funding the medical plan.3
Specialty Drug Carve-Outs
A major culprit of rising costs is specialty drugs. On a rising cost spree of their own, specialty medications, from weight-loss drugs to those used to treat cancer, are seeing steadily increasing demand and prices. This trend alone is working to drive up high-cost claims, especially as some drug costs are seeing double-digit increases.4 To get around this, employers can consider consultation for specialty prescription drug carve-outs. Carve-out coverage is exactly what it sounds like: employers carve out a specific type of coverage from their stop loss policy, then proceed to find that coverage from a different vendor for better costs. By quite literally cutting out the culprit of specialty drug prescription and finding an alternate coverage, employers can help mitigate both costs and claim risks.
RBP Networks
Reference-based pricing (RBP) networks can help bring down prices by switching premiums over. Generally, this has the potential to save employers 20 – 30% on premiums. When an employer is under reference-based pricing, they pay a set price for health services, rather than negotiating prices with providers. The payer then remits the set amount when billed by the provider.5 Instead of the stop loss carrier pricing with a network that provides discounts for particular services, they price with a percentage of Medicare rates instead.
This approach can come in handy with high-cost claims; take a patient under a Blue Cross Blue Shield network who qualifies for a 25% discount on a surgery costing $100,000. If that same patient were to have an RBP plan set at 120% of Medicare, that patient could be looking at the difference between a $75,000 cost and a $60,000 cost. With RBP, the stop loss carrier will know to price your premium accordingly, as the plan is likely going to pay less under RBP.
These are, of course, only a few strategies. Looking to technology such as advanced analytics and AI applications are potential methods to combat rising claim costs, helping insurers address the large claims.6 Using data to predict large claims can help with the management of the high-dollar claims stop-loss insurers are exposed to. Regardless of your strategy, it helps to have an advisor by your side who knows risk and how to manage it.
At RMTS, we’re experts at minimizing risk and securing long-term stability. As one of the largest and most experienced MGUs in the country, we’ve built a reputation for relationships our clients can call on. We’re ready to put our expertise to work to help you combat rising costs, wherever the healthcare space goes next.
Resources:
1. https://www.benefitspro.com/2023/10/03/stop-loss-premiums-increased-16-from-2021-to-2023-survey-finds/
2. https://www.shrm.org/topics-tools/news/benefits-compensation/medical-stop-loss-premiums-nearly-10-2022/
3. https://www.captive.com/news/stop-loss-insurance-continues-to-grow-as-employers-look-to-contain-costs
4. https://www.benefitspro.com/2023/08/03/rising-costs-greater-utilization-drive-increase-in-2022-specialty-drug-spend/
5. https://www.aha.org/system/files/media/file/2021/06/fact-sheet-reference-based-pricing-1118.pdf
6. https://www.forbes.com/sites/forbesfinancecouncil/2023/07/24/the-rise-of-the-2-million-health-insurance-claim/?sh=113a18b2703b
