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12.02.2020

Medical Stop Loss Insurance: Helping Health Insurance Corporate Buyers Keep Pace with Medical Inflation

Karthik Mohan - Vice President of Sales, Distribution and Marketing

Over the past ten years, healthcare costs have risen steadily each year as treatment and care options have become more sophisticated and advanced. As a result, corporate health insurance buyers are looking for more effective solutions to manage their healthcare spend, which is their biggest cost behind payroll. For employers who chose to self-fund their health insurance programs, employer stop loss insurance protects those groups against large or catastrophic claims, as an alternative to traditional group health insurance and benefits plans. The medical stop loss insurance sector has experienced dramatic growth in recent years as more employers migrate to self-funded health insurance programs, which offer customizable coverage for employees with disciplined cost containment oversight.

The value of medical stop loss insurance for self-funded health insurance programs

Today, approximately 61% of U.S. employers self-fund their health insurance programs, according to the Kaiser Family Foundation's 2019 Employer Health Benefits Report Annual Survey. Frequently, those same employers purchase medical stop loss insurance, which is a financial management tool that transfers the liability risk arising from large, unexpected claims, like cancer treatments, new therapies for complex conditions, and organ transplants, to an insurance carrier – sparing the employer from unpredictable, catastrophic medical claim costs that can materially impact an organization’s cash flow and bottom line.

Medical stop loss insurance is typically offered with two types of deductible options:

Specific Stop Loss, or “Spec” deductible, for individual stop loss insurance. Coverage protects the self-insured employer in the event of a severe or significantly costly claim for an employee of the group plan receiving the care, such as rare cancer condition, new drug treatment or gene and cell therapies.

Aggregate Stop Loss, or “Agg” deductible, for group claims. Coverage protects the self-insured employer that experiences medical claims under the group plan that exceed the cap placed on the policy term for the coverage.

Under these programs, the stop loss insurance carrier reimburses the employer for healthcare financial losses above the contractual policy deductible limit.

The growth of the stop loss insurance market

In the most recent report by A.M Best in August 2019, “net premiums in the U.S. stop loss insurance segment have more than doubled over a five-year period as employers shifted toward self-insured health plans since the implementation of the Affordable Care Act (ACA).” The report calculated that premium volume stood at $18.6 billion at the end of 2019, an increase from $9.2 billion in 2013. Today, stop loss market premiums represent an estimated $22.5 billion market.

While the self-insurance market has been dominated by large employers with more than 1,000+ employees, smaller companies with fewer employees have moved to self-insurance plans as they can provide more flexible healthcare options to attract talent, offer more visibility into their health spend, and control ballooning costs.

The benefits of partnering with a stop loss insurance carrier

Stop loss insurance carriers offer an excess layer of protection against financial loss to the insured’s balance sheet and bring greater transparency for health insurers to handle claims more efficiently. The benefit for the employer is the ability to capture claims data that would otherwise not be available through traditional health insurance programs. Data analytics allow the self-insured entity to develop creative, customizable health benefit programs that meet the healthcare coverage needs of its employees. Partnering with a stop loss carrier that also provides insurance solutions for the employer’s property and casualty risks can be an added benefit through delivery of a holistic approach to that organization’s enterprise-wide risk management needs.

Anticipating and protecting against large medical claims isn’t easy. It takes a trusted advisor who will be around for the long haul. With Liberty Mutual’s medical stop loss coverage, companies can plan confidently for the future, without the worry of catastrophic medical expenses. Learn more about our coverage options and how we can help employers with self-funded health insurance plans.