Best’s Market Segment Report: Employer Shifts to More Self-Insured Health Plans Drive US Stop-Loss Segment Growth

The stop-loss insurance market expanded to $26 billion in 2021 in line with a growth trend driven by an employer shift to self-funded health plans that has accelerated since the passage of the Affordable Care Act, according to a new AM Best market segment report.

The Best’s Market Segment Report, “More Self-Insured Plans Drive Stop-Loss Segment Growth,” states that self-funded insurance has become a more attractive option for a growing number of employers looking to reduce costs and enhance flexibility. An average of approximately 60% of private-sector workers have been enrolled in self-insured plans over the last 10 years, and there has been a notable uptick for smaller and medium-sized employers with fewer than 1,000 employees. Stop-loss premiums grew by 8% year over year in 2021, with the premium growth attributable to an increase in lives covered by stop-loss as more groups convert to self-funded medical plans from fully insured ones, coupled with rate increases. Additionally, more small groups have been purchasing stop-loss insurance through level-funded products, which combine the flexibility of a fixed monthly cost for the employer with aspects of self-funding, including stop-loss protection.

However, the report notes that with the rising number of costly medical treatments, the amount of the claims covered by stop-loss carriers also has been rising.

“The number of million-dollar claims has increased by nearly 50% since 2018 at some companies, while other companies have reported that million-dollar claims account for a quarter to a third of total claims paid the last three years—more than double the average of the preceding four years— pressuring costs and leading to a rise in the use of reinsurance,” said Doniella Pliss, director, AM Best. “Cell and gene therapies have been frequently named as the top generator of catastrophic claims by AM Best-rated companies.”

The segment’s use of reinsurance remains very limited, according to the report, but primary carriers have reported a significant increase in the number of stop-loss claims hitting reinsurance, raising the possibility that reinsurance carriers could establish limitations on how cell and gene therapies are covered. The segment’s loss ratio also generally has been rising, to 85% in 2021 from 74.2% in 2014, with fluctuations during the several years in between, and a contributing factor has been the introduction of new expensive specialty drugs. The FDA in 2023 already has approved more than 10 specialty drugs, and although the annual costs for drugs approved in 2019-2022 were lower, the diagnosis prevalence has been much higher.

“Prescription drug costs as a share of total claims paid have grown roughly 100 basis points each of the last four years,” said David Lopes, senior industry analyst, industry research and analytics, AM Best. “To help manage costs, carriers are using carve outs and manufacturers’ assistance programs, as well as regularly reviewing data and implementing outcome-based agreements.”

To access this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=331037.

A video discussion about this report also is available at http://www.ambest.com/v.asp?v=ambstoploss423.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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