The Case for Revisiting Aggregate Stop-loss Insurance
A growing number of employers are currently experiencing a rise in catastrophic health claims, largely due to medical and pharmaceutical advances (e.g., specialty drugs and cell and gene therapies). In the past, employers have expanded cost-sharing methods to reign in rising health expenses, such as offering high deductible health plans, but today’s employers are hesitant to shift costs onto employees amid the tight labor market. As a result, many employers with self-funded health plans are actively looking for impactful mitigation strategies. One of the most common strategies is purchasing aggregate stop-loss insurance to help cover catastrophic health claims.
Aggregate stop-loss insurance was long considered a vital strategy for self-funded employers without the available resources to withstand large health claims. However, many self-funded employers stopped purchasing this coverage once they developed an understanding of their health claims exposures and became more comfortable with the nature of their claims.
Nevertheless, this coverage is becoming increasingly valuable again, as a rising number of small and midsized employers are turning to aggregate stop-loss insurance to address the surging frequency of large health claims. With this in mind, now is the time for self-funded employers to reconsider securing aggregate stop-loss coverage to help combat their increasing health care costs.
This article offers more information on aggregate stop-loss insurance and provides general considerations for employers with self-funded health plans to keep in mind when deciding whether to purchase this coverage.
What Is Aggregate Stop-loss Insurance?
Aggregate stop-loss insurance is designed to help protect employers from higher-than-anticipated health claim payouts, therefore ensuring abnormal claim frequency across an entire group of individuals does not drain their financial reserves. This coverage establishes a ceiling for the amount employers pay in health claims on an aggregate basis during an entire plan year.
Generally speaking, aggregate stop-loss insurance can help safeguard employers from the total sum of health claims for an entire group rather than any one individual, whereas specific stop-loss coverage can help protect employers against high medical costs associated with a specific employee. Employers can add aggregate stop-loss insurance to an existing plan or purchase it independently.
Under an aggregate stop-loss insurance policy, an employer’s total claims liability is limited to a certain amount (also called an attachment point). As such, if the employer’s total health claims exceed a predetermined amount, their insurer will usually cover or reimburse them for all additional claims. For example, if an employer has an aggregate stop-loss insurance policy with an attachment point of $500,000, their insurer will typically begin providing reimbursement after the plan’s overall claims exceed $500,000.
Why Are Employers Revisiting Aggregate Stop-loss Insurance?
In recent years, many self-insured employers have decided to forego aggregate stop-loss insurance, as they’ve become more comfortable with the routine and predictable nature of their health claims. As a result, some employers have not seen the value in paying for protection they don’t believe they’ll need or use, especially since the typical attachment point for aggregate stop-loss insurance tends to be between 120% and 125% of expected health claims.
Although these claims may have rarely exceeded employers’ attachment points in the past, industry experts believe this trend could shift going forward. In fact, financial services company Sun Life reported that the number of health claims exceeding $1 million increased by 21% from 2020 to 2021, while such claims rose by 37% from 2018 to 2021. This shift has some employers revisiting whether aggregate stop-loss coverage is needed to help limit their health claims liabilities.
There are many reasons why health claims are becoming more expensive. For example, treating chronic conditions and serious accidents has grown more costly. Historically, the expenses associated with these claims peaked during initial treatments before eventually leveling off to more manageable cost levels for employers. However, this no longer seems to be the case.
Additionally, the rising cost of novel and specialty drugs utilized to treat rare conditions, such as some cancers, multiple sclerosis and malignant narcolepsy, are causing health claims to increase. Specifically, more drugs are being developed to treat orphan diseases (conditions affecting fewer than 200,000 Americans), leading to costly treatments and higher claims. Furthermore, while specialty drugs were originally designed to treat rare conditions, now they’re also being developed to treat common chronic conditions, such as asthma and certain types of eczema. Overall, more conditions are being treated with expensive drugs; yet, such drugs are not curative, meaning high treatment costs and related health claims will likely persist.
Evaluating Aggregate Stop-loss Insurance
Each organization is unique. Deciding whether aggregate stop-loss insurance is necessary depends on an organization’s specific needs, workforce characteristics and risk tolerance. Reviewing all relevant factors (e.g., rates, policy terms, costs and potential exposures) can help an organization decide whether purchasing this coverage makes sense. Employers can consider the following factors when evaluating whether to purchase aggregate stop-loss insurance.
Understanding Coverage Limitations
Aggregate stop-loss insurance plans are medically underwritten; therefore, an insurer may refuse to cover certain conditions or require higher claim thresholds for those conditions. Additionally, aggregate stop-loss policies have limits. If an employer’s claims exceed those limits, the employer is responsible for any remaining losses.
Increasing Costs
While aggregate stop-loss insurance can help employers reduce their exposures when health claims are higher than anticipated in a given year, the cost of such coverage can increase each year. Rising claims can also make it more difficult to obtain rates from other providers, and many insurers and reinsurers do not offer rate caps.
Leveraging Technology
Some employers are integrating health analytics with specific stop-loss reporting features to help identify and engage high-cost claimants and keep members healthy. Leveraging technology can help employers positively impact their future policy rates and improve their employees’ overall health.
Summary
There’s a lot at stake for employers when deciding whether to modify their health plans. The right policy, or combination of policies, can lower employers’ insurance costs, reduce their risks and help keep their workers healthy. Even if employers haven’t traditionally purchased aggregate stop-loss insurance, now is the time for them to reevaluate their exposures amid shifting catastrophic health claims trends. By revisiting aggregate stop-loss coverage, employers can help ensure they’re making the best decisions for their organizations.
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This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2023 Zywave, Inc. All rights reserved.