Episode 40 – Stop Loss and Catastrophic Claimant Risk Management

Released December 15, 2023

Mike Stull (0:08)

Hey everyone, and welcome. Thanks for joining us on HRBenecast, your source for expert commentary and insights on current health benefits-related news and strategies. This is your host, Mike Stull.

I don’t know about you, but I certainly can’t believe it. This is already our last episode for the year, and as the year ends, we’re happy to report on some of our client satisfaction survey information. The 2023 survey just closed, and I know we had roughly about 150 of our clients respond, which was a wonderful participation rate, so thank you to everyone who submitted their survey.

Our clients scored us a 4.76 on a five-point scale, so every year we try to stay above the 4.6 mark, and we’ve been able to do that every year that we’ve done the survey, and so to be at 4.76 is a wonderful testament to the work that our clients and their consultants and our team here at Employers Health do each and every year. We also want to make sure that we find out how likely clients are to recommend Employers Health to a friend or colleague, and so we track the net promoter score, and I’m happy to announce that our NPS score this year is 83.67, so in terms of where others in the industry are as it relates to health care, we’re really happy with being in that 80 to 90 range, so we’re extremely proud of these two scores. Again, thank you to all of those that submitted your surveys, and certainly our team will be doing everything it can to strive to exceed them in 2024.

As we reflect on the end of the year, we would also like to thank each of you for your confidence in our organization. Certainly we couldn’t do it without you. I mentioned at our fall benefit forum that we had an outstanding growth year as well, so when you can add that kind of growth, again about $500 million in new pharmacy spend this year, about $600 million last year, so that’s over a billion dollars in two years of pharmacy spend that represents probably about 110 to 120 new clients.

So when you can add that kind of growth and still generate this type of satisfaction scores, obviously we’re really proud of that and really happy about it, and couldn’t do it without all of you, so certainly appreciate our working relationship. Before we get started, I’m also excited to share details on our upcoming Annual Benefits Forum, March 5th and March 6th in Columbus, Ohio. The Annual Benefits Forum will feature seasoned pharmacy consultants, benefits professionals, clinical management specialists, and others who will share a host of topics, including real-life solutions to today’s benefits issues, cost reduction methods through high-quality digital care, current congressional initiatives and their effect on your plan, and certainly they will have an effect on your plan, risk management solutions for high-cost claimants, how to enhance productivity and workplace satisfaction, particularly for working caregivers, healthcare price transparency and its impact on employee benefits, the impact of biosimilars on plan performance, and of course the latest developments in everyone’s favorite topic, the new GLP-1s for weight loss.

So you can sign up to be notified when registration opens, which will be after the first of the year, and you can do that at our website: employershealthco.com/ABF24.

Again, employershealthco.com/ABF24, and we hope to see you in March. All right, let’s get started. Joining me today is Ryan Siemers, founder and principal at Aegis Risk.

Ryan is a nationally recognized expert on self-funding and catastrophic claimant risk management. He holds a certified employee benefits specialist designation through the International Society of Employee Benefit Specialists, and authors the annual Aegis Risk Medical Stop Loss Premium Survey. I hope you enjoy our conversation with Ryan.

All right, Ryan, to get us started, maybe tell us a little bit about yourself.

Ryan Siemers (5:35)

Sure, I’m Ryan Siemers. I’m the principal and the founder of Aegis Risk.

We’re a focused consultancy and brokerage on medical stop loss. As we say, it’s all we do. Obviously, stop loss is a reinsurance protection for self-funded health plans.

We work either direct with an employer on their stop loss issues, or we also partner with other brokers or consultants, or consultants who see value in having, in many ways, a plug-in expert on their side to help them review the market, find solutions for their groups on their own. It’s a neat little niche in the world of employee benefits, more broadly. Curiously, sometimes we do say that gets around stop loss, because it’s actually not really an employee benefit. It covers the group and the plan sponsor, but it’s within that world, and it’s all that we focus upon.

Mike Stull (6:35)

Where’s home for you?

Ryan Siemers (6:37)

Yeah, I’m located in Northern Virginia.

Mike Stull (6:39)

Excellent.

Well, I know we’ve had you in to speak before, and one of the things that we always were interested in getting out to our clients was the Aegis Risk Medical Stop Loss Premium Survey. Can you tell us a little bit about the survey itself before we get into some of the findings?

Ryan Siemers (6:59)

Definitely. Thanks for asking.

Yeah, it’s an annual survey we do on stop loss premium, as well as coverage provisions. This year, in 2023, was its 17th year. We’re quite proud of it. It does a very good job of both measuring policy premium and provisions from both plan sponsors. We also have quite a good amount of entries from other brokers and consultants, some stop loss underwriters, and some health plans. In many ways, even before perhaps the term was popular, we like to say it’s sort of a crowdsource effort within the benefits industry and from plan sponsors.

In recent years, it’s capturing several hundred million dollars of annual stop loss premium and capturing nearly a million covered employees in recent years. It is very much the survey that it seems the others all leverage and depend upon, as well. It’s a four-page report. We do co-sponsor it with the International Society of CEBS. I have the designation. I was a former president of the society, actually. It’s readily available. You can find it on the CEBS website or request to us at info at aegisrisk.com. It readily gets you a copy. It’s a great survey. It’s designed to be oriented towards a plan sponsor, to be able to see exactly where on the survey their premium is relative to benchmarks. Since there’s not a fixed cost of a stop loss premium, it’s highly dependable, obviously, on your deductible and what that cost would be.

Mike Stull (8:43)

Absolutely.

If I’m out talking to prospects and clients and the topic of stop loss comes up, it seems like most of them are buying stop loss policies directly from their medical carrier, but we know that they’re not the only players in the industry. Maybe as just a little bit of stage setting , tell us a little bit about who are the big players in the stop loss and reinsurance markets.

Ryan Siemers (9:11)

Definitely.

First, you are correct. When you look at the volume of premium by the largest stop loss writers, three of the top four are Cigna, UnitedHealthcare, and CVS Aetna, obviously, on their own book of business. None of those really go out and write over other administrators, although they might have arms that do as such, like Optum for UnitedHealthcare.

There’s many in the market, particularly those who probably are larger and more established on self-funding who prefer a third-party stop loss underwriter. Oftentimes, it seems in the market they can be more competitive in their rates, perhaps offer some more provisions, like what’s called a no new laser renewal, where they can’t exclude a claimant on renewal and also have a renewal rate cap. There is some value to what we call the Sentinel effect. They have another set of eyes looking over your largest claimants, because otherwise, if it’s directly written by the health plan, the stop loss, there’s not another party looking to say, hey, was this properly paid? Are there no duplicates in this very large hospitalization bill? But direct writers, just to rattle off a few, we have direct writers. We also have MGUs that can be involved. Direct writers include some of the larger, our Sun Life, Tokyo Marine, HCC, Voya, Symetra, Berkeley.

All of those, if not a couple of them there, do have over a billion dollars a year in stop loss premium. MGUs are another entity, managing general underwriters. That is where you might have an entity who does the sales, the claim servicing, and the support on the stop loss, but they partner with an insurance paper source, as we call it. It could be Nationwide is a common one, Zurich. Oftentimes might be more on groups that are a few hundred lives that are looking for an alternative to what their health plan may offer. And MGUs are also another source.

And there’s many of those out in the marketplace, regional and local as well, that play in that. But when it gets down to, you look at the market, the top 10 writers are about 70% of the overall market, including the health plans I referenced before and those larger direct writers we referenced there.

Mike Stull (11:34)

Great.

I think it’s important for those listening. I know a lot of times when we’re talking to clients about the opportunity, for example, to carve out pharmacy benefits, one of the tricks that the carriers will play is, well, if you carve it out, then we’re not going to cover it under our stop loss policy. And sometimes they feel helpless. So it’s good to know that there are other options that are out in the marketplace with credible carriers.

Ryan Siemers (12:03)

Very strong comment. And that is something that still will trigger a desire by a plan sponsor to have external stop loss.

And exactly that, the pharmacy has been carved out and it’s more readily available to be under it than by a third party stop loss writer.

Mike Stull (12:21)

So you talked earlier about stop loss being highly dependent on, for example, where a client may set its deductible. And so I’m curious, as you look at the survey results from this year, what is happening to deductibles overall as part of these policies? Are they going up? Are they coming down? Are they staying relatively the same?

Ryan Siemers (12:51)

Sure.

Good question. And I’d further add, there’s always multiple variables as to what a group’s deductible might be. First of all, as everyone knows, claim dollars are getting larger, claimants are getting larger. Just by that nature alone is causing deductibles to perhaps inch upward. But still, although it’s not a one-to-one ratio, the size of the covered population, the number of covered employees is very indicative of where your deductible might be. And it’s actually data that we have in our survey, referring back to that, that’s another graph we have in there.

So an employer with about a thousand employees per our survey might have a deductible around $225,000 as a specific, but employer of maybe 500 employees might be around $125,000 or $150,000. And they’re inching upward because of that. It is more difficult perhaps for a, let’s say a first-time self-funding group that might be say 120 lives to perhaps get a $35,000 stop-loss deductible.

That was more feasible perhaps 10 years ago, not as much anymore. That’s unfortunately starting to approach a fully insured plan is an issue there so. But the underlying cost is definitely driving up, but still most of your groups are still perhaps below a $500,000 deductible easily. And we’re seeing that consistency year over year. The premium though has definitely been rising.

Mike Stull (14:32)

Good.

And that kind of moved into the next question that I had was about premiums and what are they doing. Obviously, like you said, there’s a lot of variables that go into it, but if we try to control the variables, what generally speaking, it sounds like prices are going up for these policies.

Ryan Siemers (14:54)

They are.

And the bottom line expense has become much larger and several variations and several impacts as a result of that. First, although it’s now been over 13 years since it was passed, the Affordable Care Act, as we remember, removed lifetime limits. That really opened the gate for, I don’t want to say uncontrolled billing, but it sometimes seems that way.

There used to be kind of a ceiling assumed somewhere, perhaps a million dollars to most billings. It took a few years for that to work itself out into the marketplace, but now it’s in full effect. We see it with the evolution of gene therapies, which we can talk about, I believe, further here, where the price tag of those therapies is now permissible because there is no dollar limit on it. Particularly in inpatient settings, in hospitalizations, those costs have gone up. Labor costs within hospitals and in the healthcare as a whole, like anywhere else, have been under pressure and wages going up. That all accumulates to the average claimant, catastrophic we’re speaking of here, particularly with stop loss, being higher than it historically used to be.

It’s seemingly having, and there’s evidence at a higher level of inflation than the overall healthcare package might have that we see in the catastrophic claimants. Another dynamic we have, and it somewhat goes back to the earlier questions about what are plans doing with their deductible. If a plan does not change its deductible from one year to the next, it fully incurs leverage trend.

We had the same dynamic with fixed dollar pharmacy copay several years ago until largely coinsurance was added. $100,000 claim in year one might be, let’s say, like a $200,000 claim over $100,000 deductible. There’s $100,000 reimbursement in year one.

In year two, it could easily be $220,000 in year two. Keep deductible the same, that’s $120,000 reimbursement. Right there is a 20% increase in the reimbursement of that claim from one year to the next due to underlying trend.

You bring that across the board and we’re typically seeing leverage trends well into the teens, if not into the 20s. Our survey actually explores that because it varies by deductible and it gets higher as the deductible gets higher. But still, most groups, perhaps three quarters, do not want to change their deductible from year over year. They like to stay where they’re at if they can. In order to do that, typically, you’re looking at least a 10%, 11%, 12% increase year after year. That’s what accumulates to the higher cost of coverage.

What’s actually paid in premiums as well is because groups are not wanting to move or, as we call it, index their deductible periodically to underlying trend and slightly raise their deductible.

Mike Stull (17:57)

Yeah, I’m glad you brought up the Affordable Care Act because certainly we see that in the pharmacy space in terms of limiting the total on the deductible and the max out-of-pocket and then eliminating, as you said, the maximum benefit provisions of claims. We see these drug prices just continue to go up and up and up and employers have increased the deductibles, I think, pretty far and probably as far as they’re going to.

Then we get these copay coupons by the manufacturers to try to shield participants from the high cost of the drug and they basically stick it to the plate on the back end. It certainly has affected us in the pharmacy space and all of healthcare. It’s all connected. It also ends up hitting employers a second time as they’re out shopping for their stop-loss.

Ryan Siemers (19:02)

Agreed, yeah. As we said, it has been the law of the land, but the Affordable Care Act.

We’re still feeling for good and for management. I don’t want to say bad, but for management, the impacts all these years later. It’s still revealing itself and some of the evolution we’re seeing in underlying expenses that plan sponsors face.

Mike Stull (19:28)

Absolutely. You also mentioned the CAR-T cell therapies and gene therapies. Obviously, those are going to be incurred under the medical benefits for employers.

A lot of employers are asking us, what do we do about these? I’m not sure that the market has a really good answer to that yet, but from a baseline risk management perspective, how are these being addressed in stop-loss policies? What do employers need to be thinking about or looking for in their policies as it relates to these high-cost therapeutics?

Ryan Siemers (20:10)

Sure, definitely. That’s definitely, obviously, a very evolving concern. It’s here already, since we do have several therapies already approved and at some very large expenses.

There’s variation from the stop-loss community. First and foremost, if not already, any plan sponsor should directly ask to their stop-loss provider, are these covered? How is Zolgensma, for instance, Luxterna, are these covered therapies? At placement, ensure that they are covered. Be aware for a potential, and I referenced the word laser earlier.

Laser is the term used for a claimant that is excluded or put at a higher deductible by underwriting, because typically there is an underlying risk, and they’re known to be a forthcoming claim in the future. There may not be a deductible difference, but there could, for instance, another one we have is Roctavian, which is a finally recently approved therapy for hemophilia, which could be around $3 million on its price tag. If you have a hemophiliac on your plan who’s currently receiving Factor already at some expense, there might be a laser if that individual is prescribed or given a therapy of Roctavian, so be aware of that.

But two, there’s been philosophies from stop-loss underwriters we’ve seen. Some are very much looking to laser if they see any potential claimant, if they do, at placement or renewal. Others are realizing, hey, these are out here, and you know what? In some ways, I use Roctavian, we might have a Factor VIII hemophilia claimant that’s on our books or have been on our books that’s running at $1.5 million a year on a $200,000 deductible, $1.3 million in reimbursement. Yes, there might be some high renewals capped at 40% or 50%, but there’s still a lot to catch up because that claimant’s not going anywhere. And so they see, hey, wow, for us in our book, boy, if we could write those type of claimants off at $3 million and be largely, I’d say, done with it as far as expense, they’re seeing more of an end game there. So some of your larger writers I referenced earlier do have an approach where they’re saying, hey, we will take it.

We have a large book. We’ve already actually predicted we’re going to have three of those next year. And if you are one of those policyholders that happens to be one of the three, that’s where it is.

Stop-loss is a pooled coverage. They’re already ready to accept it. Others may not have actually priced for that quite as well and might look for ways to exclude it. So it is, do your homework. And furthermore, what is very key is ensuring that every plan has a plan document, obviously, an SPD and a plan document, and you have your stop-loss policy. And ideally, what we’re looking for is what we call plan mirroring, where there is not conflict between the two definitions, usual and customary charges, medical necessity.

And just ensure that your plan document properly covers and has the protocols and medically necessary means, if you prescribe one of these costly gene therapies, that it has gone through utilization and clinical review by the time it is dispensed. And so the plan, the health plan can show we did all of that by the time the claim hits, because that might be when stop-loss first finds out about it, when it’s actually being billed. And so it’s very important to ensure you do have a quality plan, quality plan management in place so that it is proven that this was medically necessary per the plan document and clinically covered and approved.

Finally, and to that, which a lot of people have also seen, we can’t talk about gene therapies in CAR T cell therapies without the carve-outs that are out there. So that is a more common, several in the market are offering them where there might be those that are already approved. That could be, it’s a known list typically of, let’s say, a dozen or so that already are in the market that says, hey, we will cover this therapy if any of your claimants get it. It’s carved out. So it’s no longer on your stop-loss anymore. It’s on this carve-out. Those are great, but you still probably have stop-loss in place. And so the interaction between those two needs to be fully studied and reviewed by any group looking at doing a gene therapy carve-out, because your stop-loss writer needs to know you have a carve-out, so they don’t price you for that risk. But they’re likely going to say, oh, we’re just not covering gene therapy then. This is all on your carve-out. This is great. We’ve got that. They’re probably going to do a dollar for dollar trade-off in the premium there. So don’t expect to be further savings there. But you might need to use their PBM in order to have that.

That’s how it is with Optum, for instance. You need Optum. You need to have their carve-out program. You need to have them on the PBM. A plan may not want that. Or later, a few years down the road, for other reasons, you decide you want to move that administration.

Well, that gene therapy carve-out may not be available for you anymore. Now you have to bring all that risk back into your stop-loss coverage, which means a disclosure exercise and could result in some excluded claimants. So they’re not as smooth as they initially sound, but they are another effective risk protection that’s out there for the gene therapies.

Mike Stull (25:40)

And I think most of the PBM or carrier-based kind of carve-out programs are specific about which gene and cell therapies they cover. I mean, what’s the risk of not marrying up what you’re carving out for versus the stop-loss provider saying, okay, we’ll carve out gene therapies when you’re actually only covering out five specific?

Ryan Siemers (26:09)

You’re getting right at the heart of the matter there, is that even though the carve-out gene therapy may say, hey, we cover this list of therapies. And in many ways, they say, hey, you know these are the therapies we’re covering for 2024. And they may say, hey, we expect these to have approval in the pipeline mid-year. At that time, we will add them. But part of with gene therapies and the pipeline as I referred to there is quite full with a lot of therapies for a lot of conditions and diseases are all going to be covered by these carve-outs.

None of these cover very large populations. So the price tags are significant. The real risk of a group hitting one of these is very low, but that’s not enough reason to say, oh, maybe we won’t get hit with one. I mean, the impact is significant if you are caught with one of these. But to your end, there needs to be an integration between the two with your underlying stop-loss. And that too is where, as I was getting back to the earlier question about some of those writers who are properly anticipating the impact of these gene therapies and their price tags in their book of business and pricing for it, in some ways are sort of the most optimal ones to be at in this case, because they know it’s going to be there.

And some of those writers, true for what it’s worth, have clearly said in the market, look, if you catch a $2.5 million claimant on this gene therapy, and your annual premium is only a half a million dollars a year on stop-loss, we’re not forever holding you in debt to us. They’re like, that’s a hit to our book. Your renewal will otherwise proceed normally and not due to the fact that you were the one that caught that claimant.

Mike Stull (28:03)

So as we wrap up here, when you’re out talking to clients about their policies, what are some of the others? We’ve talked about indexing deductibles, and we’ve talked about CAR-T gene therapies. We’ve talked about the different players that are in the marketplace. What else should employers be thinking about in terms of key considerations given the current market?

Ryan Siemers (28:35)

Yeah.

And in some ways, going back to a few of the comments earlier, ensure, first of all, in talking stop-loss deals with the catastrophic claimants, that you’ve got quality claim review and utilization management within your plan, and plan document language that spells that out clearly, and that it integrates or mirrors with your stop-loss policy so that there’s no dispute there between the two. But we do, and this may go a little bit beyond stop-loss, but it still does. And the stop-loss writer will seek to do this as well.

But there is definitely opportunity for abuse on the higher dollar claimants in particularly an inpatient setting to be the source of a lot of revenue for that facility on the shoulder of your plan. And ensuring that you have those bills being reviewed properly and fully. And that first and foremost should be done by your health plan administrator.

Your stop-loss administrator, too, would want to see, oh, can we have a copy of the hospital billing so we can take a review and make sure that everything was handled properly. But just ensuring you have that proper cost in clinical management on your plan, in your document and that it flows through to your stop-loss. And ensuring if you are getting value there, sell that story. One of the things that’s interesting to me with stop-loss is, it is an actively underwritten risk. It’s not formulaic, it is in some cases, because everything works off of the same, as what they call it, manual rate and then looking back to that pool of book business and what they need. But then your trying to argue yourself as a discount from that manual rate. And that is where your able to sell successes you’ve had elsewhere where your costs are relative to benchmark, efficiencies you’ve had.

This isn’t a passive situation any plan sponsor needs to be in, particularly when you know, and everyone at Employers Health knows this well that health care is also 20% of our economy now and a big funder of that part of the economy are private health clinics and it needs to be monitored and managed. And when they get very big, the stop loss is a key part of it to make sure the plan is properly covered and able to anticipate as it is and budget for it.

Mike Stull (31:14)

Excellent!

I really appreciate Ryan, you sharing the information with us. I know it was a lot of information coming at our listeners in a short time period. But, I think all very worthwhile and definitely very relevant in today’s marketplace. I know that you are planning on joining us in March at our Annual Benefits Forum here in Ohio. We’re looking forward to hearing more about survey results and other stop loss happenings. Anything else you plan on covering? That they should expect to hear?

Ryan Siemers (32:02)

Yeah definitely, looking forward to it, appreciate the opportunity to present at that meeting. You know what we are looking to do is with some visuals, perhaps speak better to what we just talked about today, there. Talk about, create some awareness of those current and evolving catastrophic claimants in the marketplace, including the gene therapies, those in the pipeline and as I referenced a few times here, sizable inpatient hospitalizations that are out there.

It’s always good; we never take an expectation that stop loss is a coverage that everyone knows really, really well. They generally don’t and that’s okay. It kind of gets back to that it’s really not a benefit argument, but make sure we talk about key policy provisions. I referenced no new laser renewal with renewal rate caps, that type of provisions that folks can look for, plan mirroring as another, standards to shoot for within your policy. Somewhat wrap that up with how to put those into action on your next renewal or market that you may have to place coverage or first time as you look to place your coverage potentially with a third-party underwriter to perhaps give you more flexibility with your plan and as we said to some of that sentinel effect that stop loss can provide on your largest of claimants. Leveraging our survey data, we got a lot of good graphs that came out of that and described earlier how to get a copy, always great to use that as well.

Mike Stull (33:35)

Alright!

Well, we certainly appreciate you being with us today for the podcast and look forward to having you with us in March.

Ryan Siemers (33:44)

Looking forward, thank you!

Mike Stull (33:47)

Thank you to Ryan and I think this is such an important topic for employers especially as claims and costs continue to grow. Again, you can hear more from Ryan at the 2024 Annual Benefit Forum where he’ll present on medical stop loss and risk strategies for catastrophic claimants. The website: employershealthco.com/ABF24, you can visit that and learn more.

Before we go, I want to thank our sponsors for helping, not only make this podcast possible but for supporting us and providing great employee benefits related content. Thanks to annual supporters CVS Health and Optum Rx. And our executive supporters, Delta Dental, the Diabetes Leadership Counsel, HelloHeart and Pfizer. Visit employershealthco.com/supporters for a full list of sponsors.

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Be well! And we’ll see you in 2024.