With more employers self-funding and the growth in high cost claims continuing, medical stop loss insurance has become even more valuable. The Affordable Care Act’s unlimited maximum limit clause also has been a factor in demonstrating the value of stop loss insurance.
The 80/20 Rule
When it comes to health care claims, the Pareto Principle, better known as the 80/20 rule, applies. That is that 20% of those covered are responsible for 80% of the costs. Kaiser Family Foundation research also supports the finding that a small percentage of people account for the highest medical costs. It reported that 5% of the population was responsible for 50% of all health spending. There are certain medical conditions associated with high cost claims, including: malignant neoplasm tumors; Leukemia, Lymphomas and Multiple Myloma; Chronic/ End Stage Renal Disease; and Congenital Anomalies, among others. Additionally, high-cost injectable drugs are represented in high cost claims.
High Cost Claims
For self-insured employers having access to stop loss insurance significantly limits their exposure relating to these high cost claims. Without this coverage, many could find themselves in serious fiscal distress stemming from a single claim given the average costs associated with some of these conditions. For example, a relatively new treatment for Spinal Muscular Atrophy, the injectable drug Zolgensma, had the highest average claim cost of $2.2 million per member. Other findings found that the top 1% of healthcare spenders average $109,750 per member, per year.
Specific and Aggregate Stop Loss
There are two types of medical stop loss coverage: Specific and Aggregate. Specific Stop Loss, also known as individual stop loss, is excess risk coverage that offers protection for an employer/plan sponsor against a high cost claim on one individual. Aggregate Stop Loss provides a top limit on the total dollar amount of eligible expenses that an employer/plan sponsor would have to pay over the contract period. The stop loss carrier reimburses the employer/plan sponsor for all aggregate claims at the end of the contract period.
A Sales Opportunity for Brokers
Advising clients on the value of stop loss is a real sales opportunity for brokers. Guiding clients, especially the self-funded, to a reputable stop loss carrier with high quality stop loss solutions, positions a broker as true trusted advisor and one with the clients’ best interests in mind. Seek out a carrier that has an excellent history of claims management, access to quality transplant networks, makes timely disclosure decisions, and offers flexible Specific and Aggregate Stop Loss options. For instance, in Specific Stop Loss, steer clients to carriers offering a wide range of run-in and run-out and paid options, annual limit of liability up to unlimited, aggregate specific deductible and a terminal liability option. For Aggregate Stop Loss, a good choice are policies that offer corridors set at 125%, as well as other corridors by exception, limit of liability up to $1 million with higher amounts subject to approval, monthly aggregate accommodation, and a terminal liability option.
