Medical claims surge concerns market

In May this year Sun Life US, a large independent provider of medical stop-loss insurance in the US, released its 11th annual high-cost claims and injectable drug trends analysis report, which analysed its claims database and highlighted trends in healthcare and medical costs.

Sun Life’s claims data showed that million-dollar-plus claims increased 45 percent, from 109 claims per million covered members in 2019 to 158 claims per million covered members in 2022.

Sun Life said that these million-dollar-plus claims appeared across a broad range of medical conditions, from more-common diagnoses such as cancer to less-common conditions such as haemophilia. Depending on the condition, contributing factors included long-term hospitalisations, specialty drugs, treatment of comorbid (secondary) conditions and complicated surgeries.

Phillip C. Giles, managing director at MSL Captive Solutions, told Captive International that the annual Sun Life report is widely respected as one of the most accurate barometers of large claims activity throughout the medical stop-loss industry. As Sun Life is among the largest writers of medical stop-loss, the veracity of the report data presents a very credible representation of the overall industry trends.

“I’m not surprised by the continuous increase in the frequency of high-cost claims,” Giles said, “but a 45 percent increase since 2019 is still, by any measure, a shocking number.

“The primary drivers of high-cost claims haven’t changed significantly over the past few years. Injectable drugs and anything infusion-related, particularly in a clinical setting, will always be at the top of the list along with cancers, musculoskeletal and cardiovascular conditions.

“Increased disease severity from delayed diagnosis and treatments, and costly comorbidity conditions, have also been on the rise since the COVID-19 pandemic,” he added.

Giles said that from his perspective, the most conspicuous contributor to (or cause of) increased claim costs is the specialty pharmaceutical segment. Specialty pharmaceuticals serve as emerging treatments for many chronic or serious (life-threatening) high-cost conditions and are a rapidly increasing percentage of all expenditures for most health plans.

In addition, Giles pointed out, there are few, if any, regulatory controls or uniform definitions for things classified as specialty pharmaceuticals. The classifications are determined by the manufacturers and the prescription benefit managers rather than the Food and Drug Administration (FDA). The lack of uniform definitions and regulations contributes to what he described as “egregious pricing tactics”, resulting in monthly costs that can run from several thousand dollars to several million dollars per year. Without more uniform regulations, specialty pharmaceuticals will continue to be the primary influencer of high-cost claims.

Giles had a warning: “The medical stop-loss industry will need to prepare for increased costs over the next several years. As I have mentioned several times, (see here), results throughout the medical stop-loss industry have been marginal in terms of carrier profitability.

“Given that the very premise of medical stop-loss is to provide coverage to self-funded employers against large claims, the continuously increasing frequency of high-cost claims is distressing.”

Giles pointed out that approximately 65 percent of the medical stop-loss market has a January 1 effective (renewal) date. Most employers received a rate increases to their stop-loss policies this past January, he said, and underwriters have been pushing increases to subsequent renewals.

“We have heard from several prominent stop-loss carriers and reinsurers that the high level excess reinsurance coverage for their stop-loss portfolios (typically over $1 or $2 million for most) is receiving meaningful (25 percent-plus) increases on their annual treaty renewals,” he said.

This will translate into significant rate increases in the primary stop-loss market, said Giles—especially at the important January 1 renewal season. The rate action is necessary to help carriers and their reinsurers ameliorate underwriting profitability as well as prepare and protect them from even more expected uncertainty surrounding the expected increased large claim activity.

Medical developments

The development of new treatments was also highlighted by Giles as something that has been causing concerns in the market.

“The emergence of new cell and gene therapies (CGTs) has been among the most significant topics causing the collective stop-loss industry to lose sleep at night,” Giles told Captive International.

“These types of therapies may be revolutionary in terms of their transformative or curative outcomes but the ultimate costs are relatively unknown at this stage—they are expected to run to several hundred thousand to several million dollars per treatment. We believe that the stop-loss market, carriers and their reinsurers, are now beginning to prepare for the inevitability of these claims through increased rates and surcharges.”

According to Giles, medical stop-loss rates are going to increase “significantly” for most employers over the next year, and he does not see either the frequency or the severity of high-cost claims slowing in the foreseeable future.

He thinks that some larger stop-loss carriers will try to assuage the CGT related increases through separate policy surcharges (maybe $1 or $2 per employee per month), but the uncertain nature of FDA approvals and actual treatment costs will still result in stop-loss rate increases.

As a result, Giles said, self-funded employers will need to pursue more innovative and assertive cost-mitigation strategies to reduce the severity of these claims, such as greater emphasis on early disease detection and treatment, transitions to home-based rather than clinic-based infusions, more direct provider contracting, mandatory utilisation of centres of excellence networks and the like.

Many high-cost claims are unpredictable but more aggressive cost-mitigation strategies can be employed via early intervention to reduce costs. Other high-cost claims are the result of chronic conditions, and greater adoption of targeted strategies can be employed to more effectively manage the costs of these known conditions and their expected high-cost claims.

“I do expect that increased stop-loss rates will result in increased risk retention and captives for self-insured employers,” Giles concluded to Captive International. “Larger group and single parent captives will be able to better leverage medical cost and risk reduction initiatives as well as increase the stabilisation of stop-loss rates.”