Stable Condition: Medical stop-loss rate increases ease
Cost trend ranges widely depending on employers’ exposure — Louise Kertesz
The medical stop-loss market for self-insured employers has ample capacity, but prices range from slight reductions to 60% increases for those with high exposures and a poor claims history, experts say.
“The (medical stop-loss) market is very similar to a couple of years ago,” said John Snyder, CEO of Medical Excess L.L.C., in Costa Mesa, Calif., a unit of Chartis Inc. “Rate (increases) are all across the board, same as last year. Rates can run as high as 50% to 60% in accounts with ongoing exposures,” he said.
While aggregate medical stop-loss coverage—a form of reinsurance that caps a self-insured employer’s medical liability at a certain total dollar level—remains inexpensive, most large employers don’t buy aggregate stop-loss coverage because they believe their claims are predictable and they can budget for them, experts say.
Most self-insured employers do buy specific stop-loss coverage, which covers individual claims that are higher than a certain amount.
“The market is still pretty good,” said Donna Cowden, senior vp at Aon Consulting in Charlotte, N.C. “In looking at January increases, we’ve seen (the rate increase) trend come down just a little,” she said.
Some insurers have even quoted less expensive medical stop-loss cover to win business. But, Ms. Cowden said, “That’s when the red flag goes up. The immediate savings could be great for an employer, but we have to make sure it’s a very clean move” to the new insurer and there are no disclosure issues that would result in claim denials.
“The economy is coming into play,” said Mark McCarville, vp and actuary for ING Employee Benefits in Minneapolis, a division of ING Group N.V. “In the past, you could count on clients sticking with you, but now the brokers are shopping the business more. I sense there’s a lot more movement.” While new-business pickup is strong, ING’s lapse rate also increased in the past two years, he said.
Dave Parker, Tampa, Fla.-based senior vp of sales and marketing for Buffalo, N.Y.-based third-party administrator Meritain Health Inc., also said stop-loss rate increases have slowed from 10% to 12% to 8% to 10% in recent years.
Medical stop-loss rate hikes always will be higher than general medical increases, sources said. That is because of what is known as leveraged trend: As the underlying medical costs increase, insurers must pay the additional costs above the deductible. That requires employers to either increase their deductible or pay an even higher rate to maintain their deductible.
Employer plan lifetime maximums also continue to increase, well above the $1 million that was standard years ago, said Rich McCabe, a director in PricewaterhouseCoopers L.L.P.’s human resources services practice.
Catastrophic claims for specific stop-loss cover also are increasing.“Everything is getting more costly and there seems to be a sense of jumbo claims, big claims that hit all at once,” Meritain’s Mr. Parker said.
“We’re seeing more claims in excess of $500,000 than we did five years ago,” said ING’s Mr. McCarville.
“There has been a continuing surge in catastrophic claims,” said Dave Wilson, president of Windsor Strategy Partners L.L.C., in Princeton Junction, N.J., which provides actuarial services and mathematical modeling to insurers and employee benefit consulting. The average catastrophic claim larger than $7 million increased 52% from 2008 to 2009, to $13 million, according to data of clients of Windsor Strategy and Verisk Health.
The average stop-loss trend, or rate of increase, is about 15% and continues to be about twice the medical trend, said Tom Billet, senior consultant at Towers Watson & Co. in Stamford, Conn.
“If your experience is clean and you had no significant claims coming through, the increase would typically be 15%,” Mr. McCabe agreed.
“We want to build a long-term relationship with our clients, with steady and fair rate increases year after year. If a group has a terrible year, we don’t want to hit them with a 70% rate increase. But if claims are running real well,” meaning no major claims, “employers have to expect the 15% to 20% rate increase” in specific stop-loss rates to cover underlying medical cost increases, Mr. McCarville said.
With the skyrocketing costs of specialty drugs, particularly for cancer chemotherapy, a significant new trend is that some employers are purchasing stop-loss for their specialty drug expenses, which can run $7,500 to $15,000 a month per patient, said Aon Consulting’s Ms. Cowden.
Some employers that are confident about their medical claims to assume that risk are going without medical stop-loss and purchasing only prescription drug or specialty drug stop-loss coverage, she said.
To mitigate rate increases, employers are looking to several strategies, including increasing their deductibles.
“It was once unusual to see an attachment point above $250,000, but we see more at $350,000 now,” Towers Watson’s Mr. Billet said.
Mr. McCarville said ING encourages employers to raise their deductible to keep rates steady and more employers are doing so. Rate increases of 20% to 30% “are real common if the employer doesn’t change the plan design” and move to a higher deductible, he added.
The size of the deductible is a client-by-client decision, said Mr. McCabe. In evaluating how much risk they can assume, “smaller self-insured employers have to be fairly conservative setting their individual limits,” he said.
Organ transplants
Another employer strategy is carving out organ transplant claims from a stop-loss policy.
“We’ve written more than 1,000 accounts in our organ transplant carve-out product line,” Mr. Snyder said. The majority of those self-insured accounts received discounts from their stop-loss insurers, which “makes renewing stop-loss much less challenging,” he said.
Employers also are trying to mitigate underlying claims costs “through wellness programs and using data-mining tools to help them understand where the risk factors are and implement programs to help employees take care of themselves” and avert future claims, Mr. Snyder said.
Meritain Health spends a lot of time “talking with our brokers and clients about the importance of implementing some sort of wellness plan that can dive much deeper into the overall claims of the group than a preventive program,” Mr. Parker said.
To get a new group engaged in wellness, Meritain Health includes a voluntary biometric screening test as part of its administrative services. Clients can pay a reduced cost for the test as a claim under their plan, he said.
Employers also try to keep rates down by “lasering” out individual employees with ongoing high claims and setting separate, higher deductibles for them. But Mr. Wilson noted that “the industry is pretty poor at lasering. There just isn’t the data there or the knowledge in the clinical support people to see how a case will progress.” The result often is that the attachment point is set too high or too low, he said.
To help control rate increases, ING has introduced a program called Cap It, which guarantees an employer’s rate increase at the next renewal will not exceed an amount determined client-by-client and that no claims will be lasered out because they are too high. The program requires an employer to purchase some form of ING group life coverage, Mr. McCarville said.
Munich Re America’s program is similar in guaranteeing a maximum renewal rate without lasering. This is “a good tool for employers…in an environment where they expect surprises,” Mr. Wilson said.
Smaller employers that have been hit with a large claim or a very large rate increase are exploring going back to an insured option to make costs more predictable, and ING has lost several groups to that route, Mr. McCarville said.
“It isn’t necessarily a brand-new trend, but one that we began to see as the economy tumbled,” an ING spokesman said. “As the economy began to turn, some employers wanted more stability and predictability in the medical benefits cost.”
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