Stop-loss insurance can be a powerful tool to help employers with self-funded health insurance plans limit their overall risk. Under a stop-loss policy, losses in excess of a set deductible limit (“attachment point”) are covered by the stop loss carrier, protecting the employer from the financial impact of large, catastrophic claims. There are two types of stop-loss coverage; Individual (or specific) stop-loss, which deals with claims associated with a specific member, and aggregate stop-loss, which covers the totality of an employer’s claims spend in a given time period.
As the dynamics of healthcare and the demand for stop-loss protection evolve, here are three trends that could continue to impact the stop-loss market.
Fully insured organizations continue to face significant premium increases with little transparency from carriers as to what’s driving them. Beyond claims experience, things like premium taxes and the carrier’s rising administrative expenses also factor into rate hikes. And while high claims typically result in sharp premium increases at renewal, those higher premiums do not go down after a year with low claims.
While self-funding has long been common among larger firms, as premiums for fully insuring continue to rise, more smaller and mid-sized firms are discovering the financial and control advantages of moving to a self-funded model supported by stop-loss protection to limit their risk.
New and costly cutting-edge treatments and specialty medications are saving lives and improving outcomes for members with cancer or chronic conditions. However, they are also driving up the frequency and severity of large, catastrophic claims. Previously, a $1 million claim would be an exception to the norm. Today, it is not unusual for organizations to see several multi-million dollar claims a year — making the need to have the right stop-loss protection in place more important than ever.
The trends discussed above have caused demand for stop-loss insurance to grow significantly. However, many employers are also deciding to participate in employee benefits captives to gain even more transparency and cost control. These innovative solutions allow like-minded employers with 100 to 500 employees to form and manage their own insurance entity. Rather than paying premiums to an insurance company, the employers contribute to a shared pool for stop-loss coverage.
As members of a captive, employers retain the profits when claims are low and share the financial impact with other captive members when claims experience is higher than expected. However, since the stop-loss premiums are based on the claims experience of a pool of employers, rather than a single employer, organizations in captives may benefit from best-in-class stop-loss contractual terms (including no-new lasers and rate cap provisions) and are not likely to experience the drastic stop-loss premium volatility that can occur when self-insuring on their own.
For employers transitioning from fully insured to self-funded models with stop-loss protection, an experienced broker partner is essential to navigating the process. Securing stop-loss coverage can be a complicated process and experienced brokers can offer guidance to ensure the policy is written in the employer’s best interest.
For example, organizations must be aware of the different vehicles and structures a stop-loss carrier will write into their contracts. Brokers with experience handling policies for a wide range of employers can flag potential areas for review, such as aggregate deductibles, lasers and other policy language that can significantly impact the amount of risk an organization assumes.
As the stop-loss space continues to evolve, the trends outlined above will be important to monitor as organizations continue to move from fully insured to self-funded. At Conner Strong & Buckelew, we have assisted countless clients with this transition, so they too can reap the cost-saving benefits. Additionally, we have deep experience helping employers who are already self-funded find better stop-loss solutions.
Today, over 80% of our clients are self-insured because of the unparalleled value we can provide under this structure. Our self-insured clients benefit from access to enhanced control of spending through data transparency, industry-leading pharmacy coalitions and rebates, population health and cost containment strategies, catastrophic claims screening technology, risk management expertise and much more. Combined with strategic stop-loss coverage placement, the culmination of these resources and expertise can create thousands of dollars in annual savings for your organization while maintaining employee benefits satisfaction.
If your organization is considering the self-funded route or is already self-funded and would like to learn more about alternative stop-loss options, please call us at 1-877-861-3220 or email [email protected].
Raymond O. Burke
Partner, Chief Health Insurance Fund Underwriter & Captive Manager
Dominic Micali
Vice President, Senior Benefits Sales Leader
