It’s been fascinating to sit back and digest what’s been happening with stop-loss premiums for administrative services only (ASO) plans.
On one side, we have large insurance companies suggesting they have taken the biggest hit. They’re playing the role of victim by suggesting they’re losing money consistently in their ASO pools and/or couldn’t have seen material changes in risk coming (despite sitting on endless amounts of data that can be leveraged to measure existing and future risk).
Across the dance floor, large ASO plan sponsors that bring important business (both insured and ASO) are being handed numbers in the dark, and in many cases are being convinced to either:
- Eat enormous increases in stop-loss premiums to maintain coverage;
- Move to higher attachment points and assume greater risk to keep premiums stable; or
- Abandon stop-loss altogether and assume all claims risk.
If part of the rationalization for all of this is, “well, ASO business isn’t that profitable” then why are they in the game at all? I find it bizarre that large ASO plans could be deemed not attractive business to have, considering their benefits include the coverage of health, dental, disability, life, etc., large claims’ volumes to offset fixed operating costs, and endless direct-to-consumer customer leads.
Case study #1
One recent example of a large ASO plan’s experience is a group with thousands of employee lives in a mature industry. There are three facts to consider about this plan: its 2015 stop-loss premiums increased by nearly 50 per cent over the previous year; its 2016 stop-loss premiums were going to increase a further 70 per cent to maintain the same coverage at $25,000; and its combined increase over two years was 155 per cent for coverage at $25,000.
The only way for this plan sponsor to keep the premium anywhere near the same in 2016 (i.e. rather than 70 per cent higher) was to double the attachment point. Its current drug spending above the new threshold is equal to 0.25 per cent of drug spending, yet the carrier feels it needs 155 per cent more than 2014.
It’s certainly one thing if you can credibly defend and explain increases, and quite another when it’s the “trust us, this is the number” and “yeah, wow, who could have seen Hepatitis C coming, eh?” Indeed. It’s amazing how these medications that take billions of dollars and years to develop just sprout out of the ground like magic beans.
Some interesting facts about this plan:
- The experience has been completely stable both on drugs and out-of-country claims. There were no out-of-country claims that reached the threshold. Drug costs per individual over $25,000 only represented 3.5 per cent of plan spending. The premiums charged were far higher than that.
- Plan population increased by only three per cent and the demographic profile stayed steady. There was nothing in their experience (current or predictive) that would have warranted an enormous surcharge over the rest of the block.
This begs the question: If pooling charges are based on the pool, not on a specific plan experience, how could it be that the risk profile of an entire block at $25,000 changed by 155 per cent if this group isn’t subjected to any special surcharges?
Case study #2
A year ago, another large plan sponsor was given a quote for stop-loss coverage. The figure made absolutely no sense based on the company’s risk profile. It currently has no stop-loss coverage.
The plan sponsor was given an updated quote one year later: same plan design, same coverage, same everything. But now, magically, the premiums quoted were 15 per cent less. Might this have something to do with the fact that the carrier is aware the plan sponsor isn’t pleased with other aspects of their relationship and isn’t eager to show up with another ridiculous quote, or did the storm clouds pass over their block now?
How does one large ASO block see its stop-loss premiums at $25,000 increase by 155 per cent while another plan asking for the same quote 12 months later yields a 15 per cent discount? And, in both of theses cases the underlying group experience has seen no material change that might result in some kind of surcharge or discount.
In my opinion, the credibility of stop-loss pricing today is suspect, and the complete lack of transparency is even more concerning.
Some take-away thoughts for plan sponsors:
- Quantify your current risk profile to determine how it’s changed over the past 24 months. If you don’t know where you stand, how can you make an informed decision?
- Quantify your predictive risk based on the existing disease state and demographic profile of the group. Ensure you consider the structure of your plan design, geographic distribution and the impact of drugs that treat multiple conditions in calculating current disease prevalence.
- Look at alternative stop-loss products in the market to assess fit.
- Establish more robust front-end specialty claims management and consider stop-loss on out-of-country claims only if you feel you can’t find a reasonable product for drug claims. Responsible, active claims management beats passive, “let’s try to catch the horse after it has left the barn” management every time.
Read: Stop loss under siege
These are the views of the author and not necessarily those of Benefits Canada.