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Rate Hikes for Specific Stop-Loss Range from Zero to 40%

By Louise Kertesz | Business Insurance
March, 2008

Market still competitive for self-funded health plans with good claims history; those with greater risks face higher prices

Self-funded health plans are seeing rate increases for specific stop-loss coverage while the market remains "very competitive" for employers with the best claims experience, industry experts say.

Meanwhile, aggregate stop-loss rates are not increasing significantly, they say.

"We're anticipating increases of 15% to 25%, depending on the level of deductible" for specific stop-loss coverage for renewals this year, said Curtis W. Olson, president of ING Employee Benefits in Minneapolis. Aggregate rates "generally aren't changing or, if so, very minimally," he added.

"There's a lot of competition" in the market, said John Dawson, vp and actuary for Willis Group Holdings Ltd. in Milwaukee. For employers, this environment compares favorably with two years ago when "it was common to see in excess of 25% increases" for specific stop-loss coverage, or medical claims from any one individual that exceed a specified amount.

"The market is very competitive right now," agreed John Snyder, chief executive officer of Medical Excess L.L.C. in Costa Mesa, Calif., a member company of American International Group Inc.

"Increases are all over the board," he added, "from no increase (for companies with the best claims experience) to 30% to 40% increases" for accounts with "a dramatically higher risk profile."

"We're seeing rates (increase)...from 9% to 35%, depending on the carrier. We see increases of 15% to 20% for clean cases without a lot of ongoing claims," said Donna Cowden, senior vp at Aon Consulting in Charlotte, N.C.

"The market is still competitive, particularly for clean cases, but for any of the employers with large ongoing claims, carriers are declining business" or requiring higher deductibles for those large claims, Ms. Cowden said.

Specific stop-loss rate increases are higher than the health care cost trend, which industry sources place at 7% to 10%. Specific stop-loss rates will always be higher than the general medical trend because catastrophic claims often use the newest treatment techniques and technologies, the cost of which is absorbed by the insurer when paying claims above the deductible.

As companies are confronted with potentially large rate increases, they increase their deductibles to moderate the higher cost, the experts said.

"What we've seen as the most effective mitigator" of increasing rates is increasing the deductible, Mr. Olson said. "We see the attachment point rising every year," he added.

"A few years ago it was unusual to see an attachment point above $250,000. Now we see up to $350,000 sometimes," said Tom Billet, senior consultant at Watson Wyatt Worldwide in Stamford, Conn.

To further mitigate rate increases, employers are adding medical management approaches for specific types of conditions or accidents, Mr. Olson said.

Analytical tools, such as predictive modeling, are available to help employers identify and manage disease states in their populations, which can lead to better health and fewer catastrophic claims, Medical Excess' Mr. Snyder said.

Richard Bukovinsky, president of national sales at Meritain Health Inc., an Amherst, N.Y.-based third-party administrator, said, "What we'll prove ultimately to the carrier is a reduced amount of claims" as a result of network contracting, medical management, wellness initiatives and education tools.

Jim Hawks, city administrator of North Platte, Neb., and a Meritain client since 2002, said, "Our biggest emphasis has been on educating employees on using the program" set up by Meritain that includes a provider network as well as wellness and medical management programs.

As a result, the city did not see specific stop-loss rate increases for two years, he said. Faced with an 8% to 9% increase at this year's renewal because a few major claims have appeared, a city committee is considering options that include paying a higher deductible for certain individuals with high claims, Mr. Hawks said.

To hold rate increases down, Dave Wilson, president of Windsor Strategy Partners L.L.C. in Princeton Junction, N.J., said his company works with administrators "to get a more effective PPO network," particularly focusing on hospital contracts and discounts as well as more effective care.

In another strategy, about 800 employers have bought an AIG organ transplant carve-out product that removes large claims from a stop-loss program, resulting in discounts on specific stop-loss coverage, Mr. Snyder said.

Another strategy that employers are using is "aggregating specifics," or not paying the full premium unless claims reach the attachment point, at which time the entire amount comes due, Aon's Ms. Cowden said.

Aggregating specifics can save money "in a year when an employer does not have large claims," said Willis' Mr. Dawson. In a competitive market, insurers offer this avenue to get the business, he said.

Additionally, an aggregate-only policy is an emerging product that once was offered by a only few insurers, Mr. Dawson said.

"What employers really need is protection if the overall claim bill gets to be too big," but the traditional aggregate coverage of "expected claims plus 25%" attachment point does not provide "true budget protection," he said. Willis developed a program that provides aggregate-only coverage at expected claims plus 10%.

Jeff Walker, director of risk manager for Collier County, Fla., in Naples, found the aggregate-only program "quite appealing" and about 30% less expensive than specific stop-loss coverage. Mr. Walker stayed with the program for about three years but moved back to specific stop-loss coverage last year after anticipating large catastrophic claims.

The county's incumbent insurer wanted a 57% rate increase for 2008, "so we found a carrier-Symetra Financial Corp.-that would do it for about a 30% increase," Mr. Walker said. Because of anticipated claims, "we feel that we will see a return despite the increased premium," he said.

"It's not a bad market for employers, " Mr. Wilson said. "But sooner or later, it has to harden."

"I don't have any reason to believe rates will be lower," said Mr. Billet. "Chances are over the next few years, (the medical cost) trend will be higher rather than lower," so specific stop-loss rates will be higher.