The medical stop-loss (MSL) insurance marketplace in the United States has experienced a huge growth spurt since 2014, when the majority of Affordable Care Act (ACA) provisions came into force. With more employer groups opting to self-fund their health plans and protect themselves with medical stop-loss insurance, the market has grown from about $12 billion at the close of 2014 to nearly $24 billion at the end of 2019.
Then came COVID-19. 2020 has been a challenging year in almost every insurance market, including the MSL space. Largely speaking, the lead carriers in the MSL market have done “a tremendous job” in terms of meeting COVID disruption with solutioning and scaffolding employer plans with confirmation of coverage and terms, according to Steve Gransbury (pictured), Head of Specialty Insurance, QBE North America. He said the lead carriers reacted well in terms of waiving underlying plan deductibles, co-pays and cost sharing for COVID-related claims and testing. Many also opened up stop-loss reimbursement eligibility around plan determinations for telemedicine and early refills for medication.
MSL coverage works on both an aggregate and specific/catastrophic loss basis. While one might assume COVID-19 would negatively impact the MSL market from an aggregate standpoint because of the sheer number of Americans falling sick with the virus, that has not actually been the case. In fact, most COVID-19 claims are “manageable events,” explained Gransbury, and the majority of cases have involved the Medicare population – those aged 65 and older - which means they’re less likely to be covered by employer plans and MSL insurance.
MSL insurers’ concerns with COVID actually lie with the more specific and catastrophic claims. Gransbury commented: “Large claims are going to materialize regardless of an economic cycle or destructive disruption, whether it’s COVID or something else. Things like premature births, multiple births, transplants, cancer treatments, specialty pharmaceutical needs, gene therapy – the MSL space is still seeing those same costly medical events.
“But what the market is also seeing is deferred utilization. Whether it’s elective care, non-essential care, or even some components of chronic care, in the early days of COVID, we saw people - based on their physician’s guidance - staying out of the hospitals and treatment centers. As a result, we’re definitely seeing reduced claims at the plan level associated with non-essential and chronic care. And there are two things that an MSL underwriter would be concerned about in that scenario, one of which is lag. Those non-essential and chronic claims will come back once plan participants are comfortable going back into hospitals and treatment centers.”
The second, probably more concerning aspect of this deferred utilization is the potential impact on chronic care patients who decided to stay out of healthcare facilities to reduce exposure to COVID-19, Gransbury added. An example of that might be patients who finished their chemotherapy treatment for a cancer condition, but perhaps they delayed or didn’t go back to the facility to get their last PET scan. Delaying that PET scan for a few months could be very costly if the patient in fact requires more radiation or chemotherapy treatment.
This potential lag in chronic claims could cause some challenges for employers during their 2021 renewals. Of the $24 billion MSL marketplace, approximately 65% of premium is associated with groups that have January 01 policy effective dates. Just weeks away from renewal, many employers are approaching this cycle with some deep COVID-19 financial wounds, so they’re looking to save on insurance costs where possible. There’s a perception that large claims costs are down and therefore their insurance costs should also go down – and from a first dollar standpoint, many plans have seen a reduction in their claims spend – but, as Gransbury pointed out, the exposure and the required pricing associated with MSL is not abating.
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“There may be a perception in the marketplace that the claims costs are down, but from a stop-loss standpoint, when it comes to large claims, catastrophic claims or specific claims - those costs are not down,” Gransbury told Insurance Business. “Economic cycles and disruptions don’t slow down catastrophic claims or reduce the severity of significant clinical events. Additionally, there is this aspect of deferred utilization, with costs that won’t disappear - they will come back to the plan. Once people feel comfortable, they will get the knee replacement, they will get the final stages of their treatment associated with chronic care, they will complete the treatment cycle for a specialty prescription, and so on.
“Moreover, the costs associated with large and catastrophic claims continue to increase year over year with advances in medical technology and new drug therapies. Specialized drugs and new gene therapy are having profound curative results for many patients, but at an ever-increasing cost. These medical inflation or trend increases have a compounding impact with a medical stop loss carrier’s exposure. Leveraged trend accelerates the annual inflationary risk to the insurer should the employer plan remain at the same specific deductible year to year. The stop loss carrier will have a larger MSL claim for like events if the specific deductible doesn’t increase with the same premium trend factor.
“When you look at the market dynamics, the NAIC came out with a report of 2019 data, which shows that the marketplace average loss ratio was 80%. If you look at the expenses and commissions associated with this product, an 80% loss ratio generally aligns with a 100% combined ratio, and that’s not a sustainable market result. So, there’s a need for rate, but we have this economic cycle related to COVID that really has the potential to create friction. While employers will be focused more than ever on price and policy terms, they also need to think about the stability, expertise, and the business resilience of the MSL carrier they choose. COVID has caused insurers to think differently when delivering on their commitments to policyholders. The carriers that have the ability to streamline the claim journey and invest in underwriting talent and technology will help employers better manage plan costs over the long-term.”