Most large employers self-fund their health insurance and medical benefits rather than using traditional health insurance.
This gives them opportunity for savings but does expose them to large and catastrophic claims. While an employer can realize the benefits from exercising more control over their healthcare savings, they could find themselves in the red due to a cancer claim or other serious issue.
Thankfully, groups with self-funded health insurance have access to stop-loss insurance to limit their losses due to large claims at both the individual and group-wide levels. If a self-funded group experiences spending for an individual or for the entire group over preset amounts, known as attachment points (think deductibles), then they file a claim with their stop-loss carrier.
Given the high value of stop-loss insurance to the self-funded group, let’s look at some key statistics around high cost claims and trends in the market for stop-loss insurance. We’ll be discussing statistics gleaned from Sun Life’s 2020 Stop-Loss Research Report on trends with high-cost claims and injectable drug.
Stop-Loss Insurance Claims Reflect the 80/20 Rule or Pareto Principle
The first thing to understand is how health care claims reflect the Pareto Principle or the 80/20 rule. If you aren’t familiar with this, it’s an observation that 80 percent outcomes are the result of just 20 percent of inputs, and as a corollary, 20 percent of outcomes are the result of 80 percent of inputs. You can see this everywhere you look!
- Baseball: 15% of players generate 85% of wins
- Basketball: 2 teams (Lakers & Celtics) have won nearly 50% of all NBA championships
- Forests: 1.4% of tree species in the Amazon make up 50% trees
One really neat observation of the Pareto Principle is how it works on a power scale, so 80 percent of 80 percent of the results can be attributed to 20 percent of 20 percent of the inputs.
The math (80% x 80% and 20% x 20%) works out to an estimation that 64 percent of results can be attributed to 4 percent of inputs, and a whopping 51 percent of results can be attributed to just 0.8 percent of inputs!
This observation is reflected over and over again in health care research and payor experience.
High-Cost Claims in Stop-Loss Insurance Claims
Research from the Kaiser Family Foundation bears the 80/20 rule out in real-life. In 2016, KFF research found that 5% of the population was responsible for half of all health spending, an average of $50,000 per year.
And true to power laws we discussed earlier, the top 1% of spenders averaged $109,750 per year! On the other end of the spectrum, the bottom 50% of the population by spending was responsible for only 3% of all health care spending, with an average spending of just $276 per year.
The Sun Life report notes that half of all stop-loss claims are from just ten conditions. And at the top of the distribution, cancer claims are the top two spots of those ten, making up 26% of stop-loss reimbursements.
Top 10 High-Cost Claim Conditions for Stop-Loss Insurance
- Malignant neoplasm: Solid tumors often caused by cancerous cells invading other tissue, $744 million from 2016 to 2019
- Leukemia, Lymphoma and/ore Multiple Myloma: $276 million
- Chronic / End Stage Renal Disease: $165 million
- Congenital Anomalies: $161 million
- Septicemia: $120 million
- Liveborn with Secondary Complications: $119 million
- Transplant (solid organs as well as blood and stem cells): $118 million
- Complications due to Surgical and Medical Care: $109 million
- Unspecified Procedures and Aftercare (large catch-all, new to the top 10): $83 million
- Hemophilia / Bleeding Disorder: $82 million
When Sun Life looked at their total reimbursements for stop-loss claims, it found that these top 10 conditions represented 50 percent of total payments. The top 3, cancer and end-stage renal disease, accounted for 33 percent of all claim reimbursements in their book of business.
Trends with Large Claims in Stop-Loss Insurance
Interestingly, we’ve been seeing more jumbo claims in the self-funding and stop-loss market in recent years as well.
The Sun Life report found that since 2016, the number of $3 million or more claims have doubled. And this affects many employers, with 24% of employers having at least one $1 million or higher claim over a four year period.
Wondering what the highest claim was? Make sure you’re sitting down… $8.1 million!
Among $1 million or more claims, there was greater growth at the tail end of the curve. By this, we mean that while there was a 17% increase in claims between $1 million to $1.5 million, there was a 44% increase in claims between $2 million and $3 million.
High-cost injectable drugs show up in many of these jumbo claims. Zolgensma, a new-ish treatment for Spinal Muscular Atrophy, had the highest average claim cost at $2.2 million per member.
These high cost claims are most commonly among young patients, with 10 of the 14 highest cost members under the age of 12. While children under the age of 2 represented only 6% of all claims, they made up a staggering 27 percent of million dollar claims. And of those claims over $1 million, 46 percent were under age 20.
What to Keep in Mind with Large Stop-Loss Claims
These numbers are eye-opening and we don’t bring them up to scare you from self-funding. Rather, you should be aware of what can happen, and the value of stop-loss insurance in protecting a self-funded group from these catastrophic claims.
One of the benefits we find in working with self-funded groups is they have an ability to steer their employees to lower-cost, higher quality providers and avoid wasteful spending, which is estimated at about 30% of all health care spending in total.
We can move the needle on helping employees receive better care and creating better outcomes, but there is always catastrophic risk that must be managed. This is where stop-loss insurance protects self-funded groups and ensures that their plan succeeds in the long-run.