Los Angeles, CA—As more high-cost cancer therapies become available, traditional stop-loss insurance becomes riskier for employers and for payers. Pharmaceutical companies, employers, and benefits design managers are expected to partner to mitigate this economic risk and enhance end-payer coverage for new drugs using the stop-loss risk management tool for self-funded health plans, said Ryan Siemers, CEBS, a risk management insurance expert at Aegis Risk in Alexandria, VA.
“Specialty pharmacy is creating a new risk dynamic for self-funded health plans,” Mr Siemers said at the Fourth Annual Conference of the Association for Value-Based Cancer Care.
Most large employers have self-funded health plans and are ultimately at risk. Reinsurance is insurance for health insurance programs, typically for self-funded employer health plans, said Mr Siemers, but it is just as necessary for other risk bearers, such as accountable care organizations and other health plan payers.
These entities need to be insured for new risks, such as catastrophic therapies that can cost $100,000 or more annually and may be ongoing over multiple years.
Medical stop-loss insurance is a risk management tool designed to protect employers from large catastrophic claims. In exchange of premium, it covers excessive variability in self-funded medical plan expense; in essence, it is a budgeting tool that protects self-funded plans from financial calamity.
Two Types of Stop-Loss Pricing
There are 2 types of medical stop-loss insurance (Table). The “specific” stop-loss model is the common form: it guards against the volatility of an individual high claimant.
For example, a self-funded health plan may have a medical stop-loss pricing at $300,000. If the employer has an employee who exceeds the $300,000 deductible within a policy year, the stop-loss coverage reimburses the expense of that claimant. In this case, the stop-loss pricing cuts the volatility.
In the “specific” form, “You’re exchanging monthly, regular premium payments, for an unpredictable occurrence of an event that needs that reimbursement,” Mr Siemers said. “It smooths it out, and that’s why self-funded employers have been using it for quite some time.”
The “aggregate” form of the medical stop-loss pricing is typically only used by smaller employers (under 1000 employees). It guards against overutilization of the entire plan. Reimbursement will kick in only if an overall plan expense exceeds a specific threshold, often at 125%.
The New Dynamics in Specialty Drugs
Specialty pharmacy will test the traditional stop-loss insurance, said Mr Siemers. With traditional stop-loss pricing, catastrophic claims are generally paid for episodes of care within 1 year. “Pricing is based on the next 12 months of these ‘pop-up’ claimants,” he said. “Stop-loss underwriting does not account well for ongoing liability in future periods. Stop-loss pricing will need to account for both expense and duration of costly specialty therapies.”
The new dynamic with some specialty drugs is the potential need for treatment lasting many years, as formerly fatal cancer diagnoses become chronic conditions, adding to the trend of increasing $1 million claimants over time. This trend may accelerate as the Affordable Care Act removes health plan annual or lifetime cost limits.
As stop-loss underwriters, “we are trying to look more at the future,” said Mr Siemers. “We’re trying to get an employer to find value in this coverage, as these therapies start to hit.” Premiums may potentially be higher, but so is the newfound risk.
Underwriters will welcome collaboration with the pharmaceutical industry to manage drug costs.
“It’s key for the provider in the pharmaceutical community to be aware that the underwriting community and the payer community, particularly on the employer side, need to have a better sense of what’s in your pipeline…so that we can perhaps work with underwriters to have a coverage,” said Mr Siemers.
“The risk is in the future, but we need to act now to get a better understanding of therapies in the pipeline,” he emphasized.