As employer mandates under the Affordable Care Act (ACA) start to kick in this year and next, self-insured companies are expected to ramp up the purchase of stop-loss medical insurance coverage, executives with Symetra Financial said.
Symetra is a leading seller of medical stop-loss insurance for self-insured employers.
Michael Fry, executive vice president of Symetra’s Benefits Division, said many smaller and midsized employers spent much of last year “asking a lot of questions and making inquiries through their brokers and consultants about self-funding.”
“As we move in to 2014 and 2015, the employer mandate under health care reform is going to start kicking in. And so we do believe that some of those inquiries will turn to action,” Fry said in a conference call with analysts. “So I do think that there’ll be more new business opportunities coming our way with regard to self-funding.”
Sales of medical stop-loss coverage have been declining for six consecutive quarters at Symetra, said UBS analyst Humphrey Lee.
Employers with more than 100 workers will be subject to employee-coverage rules under the ACA beginning in January 2015. In February, the Obama administration gave employers with between 50 and 100 employees an extra year to phase in coverage for employees who work more than 30 hours a week.
Self-funded employers pay medical insurance claims out of their own pocket. They do so because they find it is cheaper than paying for similar coverage in the traditional “full-insured” market. The nation’s largest employers are often self-insured.
Employers buy stop-loss insurance to protect them from a catastrophically expensive medical claim that soars past the deductible.
Stop-loss insurance reimburses a company, not the employee, for a medical claim. Assuming a $200,000 deductible, a stop-loss policy would reimburse an employer $600,000 annually for treatment that costs $800,000 a year, for example.
Stop-loss coverage was designed to cover the “pop-up” claim, the claim that occasionally incurs a couple hundred thousand dollars or more on the underlying health plan. But with the ACA ushering in a new era of unlimited lifetime maximum payments for the underlying medical plans, stop-loss experts see an era of higher-severity medical claims on the horizon.
The 2013 Aegis Risk Medical Stop Loss Premium Survey found that over the last two policy years, 55 percent of respondents incurred a policy year claimant in excess of at least $500,000, while 31 percent reported a claimant in excess of $750,000 and 14 percent reported a claimant in excess of $1 million.
“Formerly a rare event, claimants in excess of one million dollars are more and more commonplace,” said Ryan Siemers, a stop-loss insurance expert and principal at Aegis Risk.
As a result, the nation’s stop-loss carriers are taking a closer look at claims histories for self-funded insurance plans.
Fry also said that new opportunities to sell medical stop-loss insurance will materialize later this year, when insurers begin quoting business effective with Jan. 1, 2015, renewals.
Any stop-loss premium increases this year will be modest, he said, “but I think you’ll start seeing an uptick as we move in to early 2015.”
Symetra in April reported first quarter net income of $79.3 million, up from $66 million in the year-ago period. First quarter operating income was $66 million, up from $49 million compared to the year-ago period.
Income from the benefits segment dropped to $101.2 million, down 15.3 percent compared to the year-ago period, the company also said.
Symetra president and chief executive officer Tom Marra said that over the next few years, he expects that employers will deliver benefits over private health insurance exchanges. Symetra, he said, plans to “market all of our benefits products” over private benefit exchanges.
Private exchanges, many run by big benefits brokers, nationwide health insurance carriers or specialty companies, have gained traction among employers. These privately run exchanges are not part of the health insurance exchanges set up by the states and the federal government.
Fry said that health benefits, like retirement products, will move quickly from a defined benefit model to a defined contribution model in which employers give employees a stipend to pay for all or a portion of the premium toward medical, life and disability insurance coverage.
He also said he envisions stop-loss medical insurance to be “very similar” to “cafeteria-type options that employers provide to their employees today.”
A “cafeteria” model, through which employers offer different health coverage networks to employees working in many locations across the country, allows Symetra to write stop-loss coverage across those many networks, he 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].