Taming the Big Cat? A Primer on Stop Loss Insurance


As we transition from Halloween to Thanksgiving, we know many of our clients and their service teams are preparing for or have already conducted open enrollment. While most employees appreciate their benefits, they are not familiar with all the work that HR and executive leaders put into what gets delivered at the enrollment meeting. One of the major reasons for providing health insurance is to protect families from a catastrophic financial loss. This is why most employers buy stop loss insurance to cover large claims.   Stop loss carriers also purchase reinsurance to cover their really big claims.   ... the large catastrophic's that we'll call ...   the Big Cats! This year our Holmes Murphy Employee Benefits Consulting Group and our Innovative Captive Strategies teams were approached by a group of large national employers to explore forming a captive for the purposes of insuring stop loss insurance.   Some of them had experienced a claimant or two that exceeded $1MM. A self-funded plan sponsor has a 6% probability of seeing one each year.   The interest in our captive was to smooth out fluctuations from year to year as opposed to the large double digit premium increases or knee-jerk reactions they were getting from the retail marketplace.


While our firm works with thousands of large self-funded groups with stop loss, we rely on a larger industry data set comprised of 4.6MM covered lives representing 6.1BB in health plan spend to spot broader trends. We thought it was worth illustrating what has transpired in the big cat marketplace since carriers no longer have lifetime maximums.   As you recall, these were eliminated under the "Affordable" Care Act. The chart represents the number of   claimants from the period 2012 through 2016 that had paid medical and pharmacy   claims of $1MM or more. Shockingly, the claimants doubled from 2012 through 2015 and then by another 26% in 2016. We will update the 2017 stop loss experience in the Spring of 2018.

While it might feel good to blame your stop loss carrier, each is dealing with greater prevalence and intensity of claimants, a hardening reinsurance market, and specialty drug spend (in particular with injectables) with double digit cost trends.  As to the burden of disease related to these claims, consistently malignant neoplasms (cancer) remains the most dominant disease, accounting for about 27% of all stop loss claims, with leukemia, lymphoma and multiple myeloma (cancers) running second.   Kidney disease and ESRD ranked third with premature babies and transplants rising to the number four and five positions, respectively, based on stop loss reimbursement payouts.

So with all this good news, how are we helping our clients tame their big cats?   Tune into another edition of 'What Up Holmes' to find out.  In the meantime, please do our society a favor as you head into your own open enrollment season and make sure and take cover.