Managing Medical Stop Loss
Phil Gardham has been in the insurance industry for nearly three decades, much of that time focused on medical stop loss (MSL).
“For years, the stop loss market realized moderate growth at best, but with the passing of the 2010 Affordable Care Act, the scope and size changed significantly.”
A significant portion of large employers have always self-funded their health benefits. Today that number is about 80%. However, what has largely driven the growth of the MSL market—from $6 billion in 2010 to over $20 billion today—is the number of small to midsize employers self-funding their health benefits.
“Benefit brokers, thanks partially to the ACA, were given an expanded clientele and another option to show their clients. There was definitely a financial incentive for brokers to sell stop loss, and a good way to do so was by educating employers that they weren’t risking their financial health by moving to a self-funded approach,” says Gardham, senior vice president of accident and health and head of medical stop loss for Berkshire Hathaway Specialty Insurance.
“If an employer is not self-funded, it likely pays premiums to one of the large, national, fully insured carriers and will have limited knowledge of what factors are affecting the cost,” Gardham says. “They will also have a lot less flexibility in the plans they can offer their employees or the impact they have on the management of their claim risk.”
Moving to a self-funded approach gives the employer detailed claims data and information on what is driving their claim risk and allows them to implement risk management tools to help mitigate their exposures. In addition, it provides them with the opportunity to deliver more customized plans to their employees. Today, employers with as few as 25 employees are successfully self-insuring their health benefits.
Looking toward the future, employers are concerned about the high cost of healthcare and the impact of having one or more catastrophic claims during a financial year. Two major drivers of these costs include high-cost injectable drugs and gene therapies. The self-funded employer can purchase stop loss coverage to protect against these exposures and protect the financial health of the company.
As small to midsize employers (500 employees or less) have increasingly moved to self-funding, these catastrophic claims have posed a new challenge for stop loss brokers and carriers. The monthly charge for high-cost injectable drugs and gene therapies can be in the hundreds of thousands, resulting in an annual cost in the millions. According to Gardham, “At one point, million-dollar claims were the exception, but that is no longer the case.”
Gardham says the stop loss market has had to become creative to help smaller and midsize employers manage these high-cost drugs and diagnoses, whether the treatments are one-time or ongoing. He says medical management and claim controls are the keys.
To help reduce costs, insurers can participate in a review process of high-cost prescriptions to ensure patients are taking the right drug at the right time and to ensure patients aren’t taking unnecessary medication or improper drug combinations. Other options include requiring prior authorization before beginning a new drug, and adherence programs can ensure patients are taking their medication properly and regularly to avoid major costs down the road.
Employers can also put utilization limits on medication to avoid excessive usage. Plans can limit the initial supply of a medication. This avoids waste if a patient quits taking a costly drug because of negative side effects. Benefit plans can be changed to wait until drugs are proven and allowed into the formulary, or insurers can require using biosimilar medications that are less expensive but as effective.
Drug makers have expressed their willingness to work with insurers to create new payment agreements to help more patients access their treatments. In addition, insurers are seeking to reach agreements with drug makers to tie gene therapy payments to the treatment’s results in patients. But the number of cost protection plans for employers remains limited, and it is unclear whether new approaches will allow insurers to lower the costs of gene therapies or simply spread out their costs.
Employers of all sizes continue to look at self-funding their benefits as an option. The numbers will continue to grow, and they will look to the MSL market to provide protection against catastrophic exposures while at the same time developing products and services to manage these risks.