Stop loss coverage is a critical component of a self-funded health insurance plan, and Fall is when most plan sponsors renew their coverage. BCS Director of Large Claims Business Development, Blake Schraft, shares four key concepts for plan sponsors and carriers to understand ahead of the renewal season.
1. Leveraged Trend
Many plan sponsors are surprised when their stop loss renewal rate increase is higher than the prevailing claim trend. It is important to remember the concept of claim trend ‘leveraging’. At higher deductible levels (those levels used for stop loss insurance policies), increases in underlying claim trend are magnified if the deductible level is not increased accordingly. In the example below, the value of the gross claim increases by 10% in year 2. However, because the stop loss deductible was left unchanged in year 2, the value of the stop loss claim that the insurer has to pay increases by 60%! By increasing the deductible in year 2, the stop loss claim trend is reduced to the gross claim trend amount of +10%.
| Year 1 | Year 2 @ Same Deductible | Year 2 @ Higher Deductible | |
| Deductible | $250,000 | $250,000 | $275,000 |
| Gross Claim* | $300,000 | $330,000 | $330,000 |
| Stop Loss Claim | $50,000 | $80,000 | $55,000 |
| Stop Loss Claim Trend | 60% | 10% |
2. Deductible Level
In light of the leveraged trend concept outlined in #1, it is important for plan sponsors to continually review their stop loss deductible and update the deductible level when appropriate. Setting the stop loss deductible too low can result in higher than average stop loss insurance premium increases due to the leveraged trend effect and increased frequency of claims at lower deductible levels. BCS can assist you in determining the optimal deductible level / range for your consideration
3. Aggregating Specific Deductible
Most stop loss insurance carriers make available a policy option called an Aggregating Specific Deductible (ASD) to their specific stop loss policies. This ASD adds a second layer of deductible on top of the specific stop loss deductible that can be satisfied by more than one claimant. In exchange for taking on more risk via the ASD, stop loss insurance carriers will credit the policy holder’s annual premium by 75% – 100% of the value of the ASD. Carriers that credit the annual premium by 100% of the value of the ASD (like BCS Financial does) are offering the policy holder the opportunity to lower their costs at no financial risk. If claims experience runs favorably, the policy holder can save some or all of the amount of the ASD due to the premium credit. If claims experience runs poorly, the policy holder will pay no more than they would have without the aggregating specific deductible.
4. Gene Therapy Costs
New gene therapy treatments continue to be approved at exorbitant price points (Zynteglo was approved by the FDA in August 2022 at an estimated cost of $2.8 million). As more of these products are approved and available, claims for these products have the potential to result in higher stop loss renewal rate increases in the future and/or more extensive use of lasering. There is a lot of activity taking place in the industry right now around managing gene therapy cost trends. Plan sponsors should be actively considering how they intend to manage these products within their plan and plan document. BCS Financial has introduced a stop loss policy aimed at jumbo employers that provides robust coverage for FDA-approved gene therapy products.
BCS Financial is here to help. To connect with Blake about any of the stop loss concepts mentioned above, or to get more information for stop loss for your plan, email [email protected].
