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The rising frequency of catastrophic health care claims and the elimination of coverage limits under the health care reform law could lead to an increase in self-funded employers buying medical stop-loss insurance.
During the past three years, much of the limited growth in stop-loss insurance placements has been driven by mid-market employers switching to self-funded arrangements. Those employers have largely sought to relieve themselves of the taxes imposed on fully-insured benefit programs, as well as the fees such as risk charges which are assessed on fully insured group health plans by insurers, generally about 2% of the annual group premium.
“Generally, the growth we're seeing is in the 1,000-lives-and-under segment,” said Ed Kaplan, New York-based senior vice president and national health practice leader at The Segal Group Inc.
However, experts say stop-loss purchasing is likely to increase across all sizes of self-insured employers beginning later this year — including larger employers — in part because of the prohibition on annual limits on the dollar value of employee health coverage that went into effect in January under the Patient Protection and Affordable Care Act.
Coupled with the reform law's previous prohibition of lifetime dollar value limits, experts say the bar on annual limits likely will drive more self-insured employers to implement stop-loss coverage to shield their cash flow against unlimited liability from high-cost health care claims.
“We tried to warn some of our clients that the phase-out of those limits was coming, but it was hard to get a lot of traction in those conversations.” said Ryan Siemers, founder and principal of the Alexandria, Virginia-based brokerage Aegis Risk L.L.C. “Once employers have been faced with a high-cost claimant, that's when we think they'll realize that the liability for that claim is fully uncapped.”
According to Brentwood, Tennessee-based MyHealthGuide L.L.C., the nation's five largest stop-loss insurers are Cigna, Sun Life Financial, HCC Life Insurance Co., HM Insurance Group, and Symetra.
For most employers, experts say the prospect of incurring a catastrophic health care claim is not a question of “if,” but rather “when,” given the rate at which the frequency of high-cost claims has increased during recent years.
According to a December report by Pittsburgh-based Highmark Inc., the rate of health care claims in excess of $1 million doubled in just five years, rising to 4.2 claims per 100,000 employees in 2012 from 2.1 claims in 2008.
As a result, experts said many insurers are marketing specific stop-loss coverage with attachment points of $1 million or higher to larger self-funded employers that previously relied on their own retentions to address higher-cost claims.
“Five years ago, it was tricky to get a stop-loss quote with anything higher than a $500,000 attachment point,” Mr. Siemers said. “Today, we've found most carriers willing to go up to $1 million without really blinking, especially as the claims experience at that size level is probably more easily attainable.”
Higher specific attachment points are just one of several policy terms and conditions on which insurers have recently signaled some degree of flexibility to entice self-insured employers toward stop-loss coverage.
“One thing that's loosened up is that the insurers used to all require their administrative services (only) clients to purchase stop loss exclusively from them,” said Mike Wojcik, Orland Park, Illinois-based senior vice president of employee benefit solutions at The Horton Group. “Today, most of the large insurers have given their ASO employers the option of placing their stop loss coverage with another insurer. It gives employers a good opportunity to take advantage of a favorable marketplace.”
For smaller employers that are more sensitive to cash flow volatility, several insurers have introduced stop-loss features such as specific simultaneous reimbursements and monthly aggregate accommodations, in which an employer's aggregate deductible is prorated on a monthly basis.
“Rather than waiting until the end of the policy period to determine whether or not claims have reached the aggregate deductible, we look at whether or not there's a reimbursement due in a particular month, based on the expected claim experience for that month,” said Karin James, assistant vice president of strategic operations at Wellesley Hills, Massachusetts-based Sun Life Financial Inc. “It basically breaks out that aggregate determination in order to reduce volatility and improve cash flow performance for the employer.”
Large employers — particularly those with several years of reportable claims history as a self-funded group — might be able to avail themselves of relaxed disclosure requirements or “dividend-eligible” stop-loss contracts, in which employers whose claims experience outperforms their insurer's risk pool in multiple consecutive years can earn back a portion of their premium.
“Generally, you're talking about (insurers being interested in an employer) that can produce historic claim data for multiple plan years, has a relatively stable employee headcount and is comfortable with a multiyear commitment from the employer,” Segal Group's Mr. Kaplan said. “Insurers aren't going to do it for a one-year client.”
Special trusts called voluntary employees' beneficiary associations, long used to fund long-term disability and other employee benefits, have become a way for financially troubled employers to shed their retiree health care liabilities.