By Cyril Tuohy
Individual health claims of $1 million or more have increased tenfold over the past four years due to new medical technologies, advanced drug therapy and more Americans insured under health care reform.
The findings were reported by the U.S. business group of Sun Life, a large writer of stop-loss insurance.
Karin James, assistant vice president of strategic operations for Sun Life’s stop-loss business, said that Sun Life last year paid “more than double the number of individual $1 million or more catastrophic claims compared to the prior year, by far the biggest annual jump in the study.”
Self-funded employers take out stop-loss insurance to protect themselves when a claim surpasses the underlying health plan’s deductible. A stop-loss policy, which is designed to cover the occasional or rare “pop-up” claim, reimburses a company, not the employee.
Employers self-fund their claims because it is cheaper than paying for similar coverage in the traditional fully-insured market. Individual claims above $1 million are known as catastrophic claims as they are large enough to bankrupt a company if not properly managed.
With self-funding comes more risk. Companies or third-party administrators need an accurate handle on their claims data if they are going to self-fund their claims.
The rise in the number of catastrophic claims came from complications surrounding infants, premature births and newborns with congenital anomalies. The diagnoses stemmed from normal pregnancies that then turned into catastrophic claims, the company also said.
“Sun Life is seeing more catastrophe stop-loss claims with higher price tags,” James said.
Stop-loss insurance expert Ryan Siemers, a principal at Aegis Risk, told InsuranceNewsNet that the Affordable Care Act (ACA), which took effect Jan. 1, would likely thrust stop-loss insurance into a new era.
Higher claim severity and frequency isn’t exactly a surprise. The ACA’s unlimited lifetime maximum payments for underlying medical plans and the ACA’s mandate that employers cover more lives has pointed to higher claims payments.
Claims are more expensive and more frequent.
“We anticipate costs will only continue to rise as new technologies are adopted, advanced drug therapies are introduced and the Affordable Care Act (ACA) increases access for participants,” James said.
Ranked by aggregate cost, malignant forms of cancer were the top catastrophic medical condition from 2010 to 2013 with a value of paid stop-loss claims of $347.9 million, or 17.5 percent of all paid stop-loss payments that Sun Life made to policyholders over the four-year period, the company said.
Chronic and end-stage renal diseases were next with a value of paid stop loss claims reaching $164.3 million, or 8.2 percent of all paid stop-loss claims over the past four years.
Other forms of cancer — leukemia, lymphoma and myelomas — were the third-most expensive conditions with $159 million reimbursed to stop-loss policyholders, or 8 percent of stop loss claims over the past four years, Sun Life said.
The top three conditions represent 34 percent of all stop-loss claims payments made by Sun Life to policyholders from 2010 to 2013.
Stop-loss insurance carriers, like all insurance companies, work with brokers and advisors to calculate how much companies need to set aside in reserve to pay for stop-loss claims.
Before the era of unlimited lifetime maximums, stop-loss carriers relied on predictable claims histories from employers, but that is changing: claimants in excess of $1 million, once “a rare event,” are more common, Siemers said.
Siemers conducts the annual Aegis Medical Stop Loss Premium Survey. Last year’s survey measured 224 employers covering about 450,000 with $145 million in annual stop-loss premium.
Sun Life and Aegis recommend employers implement wellness and early illness detection programs to limit the number of catastrophic medical claims. Sun Life and Aegis also suggest companies working with predictive modeling and data analytics companies .
“Self-insured employers, brokers and third-party administrators have the chance to implement cost containment strategies that protect both their employee’s quality of care as well as the company’s bottom line,” said Laura Rollinson, stop-loss claims director for Sun Life.
Developing a top-notch stop-loss strategy can be a “win for all parties,” Rollinson said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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