Stop-Loss Insurance Continues To Grow as Employers Look To Contain Costs

Stop-loss insurers saw their premium volume increase to $31.6 billion in 2022, reflecting a growth rate of 13.4 percent from 2017 to 2022, according to the Fall 2023 Stop Loss Market Update from Guy Carpenter and Oliver Wyman.

The report said that 10 percent of the annual growth is attributable to cost trends and business mix changes, with the remainder resulting from increased enrollment. Claims increased at a faster rate than premium growth, the report said, with stop-loss insurers' loss ratios deteriorating from 78.5 percent in 2017 to 84.1 percent in 2022.

Increased healthcare costs and ongoing inflation pressures are leading employers to actively seek alternatives to control costs, Guy Carpenter and Oliver Wyman said. "Enrollment in the fully insured medical market has declined by 14.2 percent since 2017 as employers are migrating to self-funding mechanisms as alternatives to lower costs," the report said. "The increase in claims over $1 million in the past five years is a growing concern for insurance and reinsurance companies."

According to the report, while overall medical trends have remained relatively stable in about the 4 percent range over the past 5 years, leveraged trends for higher attachment points have ranged as high as more than 20 percent as a result of complex inpatient claims, including for neonates, as well as increased costs for injectables and dialysis and emerging costs for cell and genetic therapies.

Guy Carpenter and Oliver Wyman found that advanced analytics and artificial intelligence applications are proving increasingly useful to stop-loss insurers in addressing large claims. "Emerging techniques, including using previously underutilized data to predict large claims are promising tools to address challenges in managing the increasing exposure stop-loss insurers have to high-dollar claims," the report said.

However, the report suggested that stop-loss insurers' profitability may be challenged in the next few years by the trend of growing claims and emerging gene and cellular therapies.

Stop-loss claims greater than $1 million have increased more than 34 percent over the past 3 years, the report said, while claims over $2 million have increased 62 percent over the same period. Claims in excess of $5 million have increased 275 percent over that time.

The report noted that the use of group captives is an increasingly popular option for employers looking to self-insure employee health benefit offerings.

"In a group captive vehicle, the employers gain the advantage of participating in a larger risk pool and spreading risk across the groups in a captive arrangement, while still self-funding the medical plan," the report said. "This pooling acts to increase the negotiating power of the employer groups."

Participating in group captives may allow employers to realize stop-loss insurance volume discounts they couldn't achieve with an individual self-funded program, Guy Carpenter and Oliver Wyman said. And, by having an additional retained layer in the captive, the price of the stop-loss coverage can be reduced and smoothed over time, the report said.

Medical stop-loss captives have historically had better loss ratios than traditional stop-loss programs, and those attractive results, coupled with the challenge of finding growth in the crowded employer stop-loss market, have led many stop-loss insurers to expand into the captive marketplace, Guy Carpenter and Oliver Wyman said.