Viewpoints from Craig Hasday
In 2019, about 61% of workers with employer-sponsored insurance were enrolled in a self-insured or partially self-insured plan.*
As healthcare costs rise, employers – guided by advisors like EPIC – seek cost savings by negotiating the components of health insurance premiums rather than leaving this to the opaque, and highly profitable, health insurance carriers. Plan elements, such as pharmacy costs, are routinely “carved out” and put under a microscope by sophisticated employers and their advisors.
Self-insurance, however, entails assuming more risk of adverse claims. And the terms of this type of coverage are about to get even more complicated.
Stop-loss coverage mitigates adverse claims risk and consists of two components. The first is individual coverage, or specific stop loss, which restricts the plan’s monetary risk of any individual claimant to a pre-established limit. The second is aggregate stop loss, which limits risk exposure for all claimants to a pre-set maximum.
After the elimination of annual and lifetime maximum benefits for covered individuals, introduced by the Affordable Care Act in 2010, things got riskier. Today’s stop-loss environment has become very complicated, and an employer should choose their broker/consultant carefully.
Up until a few years ago, it was rare for individual claims to exceed $1 million, but that is no longer the case. 25% of large employers now report claims of over $1 million.
A 2020 report released by Sun Life, a leading stop-loss insurer, covering 2,600 businesses with 40,000 employees, found that nearly one-quarter of businesses with 50 to 100,000 employees had an individual with a $1 million or greater claim, with the highest claim reported at $6.3 million. Cancer therapy has long been the leading cause of large claims, followed by end-stage kidney disorders, with significant COVID-19 claims now beginning to emerge.
Now we have a new risk to watch – gene therapies.
Several drugs have cleared the Federal Drug Administration (FDA) approval process, with more in the pipeline for 2023. For example, Zolgensma® treats spinal muscular atrophy, a rare childhood condition, at a cost of about $2.1 million. Luxturna® treats vision loss in children and costs $850,000. Roctavian™, used to treat hemophilia A, is expected to be approved in early 2023 with a price tag of $2-3 million.
The emergence of gene therapy drugs is not significant enough to disrupt the market, but the pipeline of these curative medications is extensive.
I attended a recent Self-Insured Institute of America (SIIA) conference, where conversations about cell and gene therapies were by far the most prevalent. Stop-loss insurers are concerned – and where there is worry, there is the potential for market disruption. Some stop-loss carriers have already looked at excluding coverage for these drugs, and the large pharmacy benefits managers (PBMs) have come up with limitations for funding options.
For example, a drug may be covered, but the significant medical cost of administering the drug may not. One insurance carrier has a standalone policy covering certain gene therapies, but this coverage comes with a large caution flag. Employers need to thoroughly understand their risks and limitations.
Staying close to your knowledgeable benefit advisor will be more critical than ever as risks continue to emerge.
In 2021, Pharmaceutical Strategies Group (PSG) became a part of EPIC. We offer employers pharmacy savings of up to 40% off insured pharmacy rates, illustrating the potential impact of self-insurance. We are ready.
EPIC offers these opinions for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this article and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.
President, National Employee Benefits Practice