4 Major Stop Loss Trends for 2023 - My Analysis of the Tokio Marine HCC Market Report

This video provides an expert analysis of the Tokio Marine HCC 2023 Annual Market Report, focusing on four critical trends impacting the self-funded stop loss insurance market. The speaker uses the report's data to highlight areas of significant financial risk and offer actionable strategies for employers and benefits professionals. The overall context is the rapidly increasing cost and complexity of catastrophic medical claims, driven largely by advancements in pharmaceutical technology and a failure by many self-funded plans to proactively manage their risk exposure.

The analysis begins by emphasizing the dramatic rise in high-cost claims. Data tracked from 2014 to 2022 shows that the frequency of $1 million claims increased by approximately 340%, while claims exceeding $2 million surged by over 1,000%. This trend underscores not only the increased frequency but also the greater severity and duration of catastrophic medical events, putting immense pressure on stop loss carriers and self-funded plans. A major focus of the analysis is the financial pitfall of failing to adjust specific deductibles, a phenomenon known as "leverage trend." The report data revealed that over 50% of clients never raised their deductible over a five-year period, and another 30% only raised it once, leading to significantly higher premiums as carriers account for the unmanaged risk.

Crucially, the third and most important highlighted trend is the impact of emerging gene therapy solutions. The report tracks FDA approvals and projections, showing an expected tripling of gene therapy's financial impact on the overall block of business by 2024. The speaker cites the example of Hemgenix, a hemophilia B drug approved in late 2022 with a staggering $3.5 million price tag, illustrating the magnitude of the financial risk posed by these cutting-edge, curative therapies. This trend is directly linked to the accelerating pace of FDA approvals, demanding that plans have measures in place to counteract this rapidly escalating cost exposure. Finally, the video notes the exponential growth in the captive insurance market, tracking significant increases in both premium levels and the number of cases handled by carriers, suggesting a growing adoption of captive models by small and mid-sized businesses to manage these escalating risks through risk pooling.

Key Takeaways:

• Catastrophic Claims are Surging in Frequency and Severity: Data from 2014 to 2022 shows that the frequency of $1 million claims rose by 340%, while claims exceeding $2 million increased by over 1,000%. This indicates that catastrophic claims are lasting longer, getting bigger, and occurring more often, demanding robust risk management strategies.
• Gene Therapy is the Single Most Important Emerging Financial Risk: The pipeline of gene therapy drugs is expected to triple its financial impact on the stop loss market by 2024, driven by ultra-high-cost, often one-time treatments that originate from the pharmaceutical sector.
• Multi-Million Dollar Gene Therapy Drugs are Becoming Reality: The speaker specifically referenced Hemgenix, a hemophilia B drug approved in late 2022, which carries a $3.5 million price tag, serving as a concrete example of the extreme costs now entering the market due to pharmaceutical innovation.
• Failure to Adjust Deductibles Leads to Overpayment (Leverage Trend): A majority of clients (over 80%) tracked by Tokio Marine either never raised their specific deductible or only raised it once over a five-year period. This stagnation forces carriers to charge significantly higher premiums to account for the unmanaged leverage trend.
• Proactive Deductible Management is Essential for Cost Control: To counteract the leverage trend and avoid excessive premium charges, self-funded plans should consider raising their specific deductible in small increments (e.g., 5% to 10%) every one to two years.
• Captive Insurance Models are Experiencing Exponential Growth: The benefits captive market is seeing significant growth in both premium levels and the number of cases, indicating that more small and mid-sized businesses are adopting risk-pooling strategies to manage volatile claims and gain greater control over their benefits costs.
• Utilize PBMs with Advanced Cost-Saving Strategies: Plan sponsors are advised to partner with Pharmacy Benefit Managers (PBMs) that actively leverage alternative sourcing, Patient Assistance Programs (PAP), and lowest net cost strategies to manage the high cost of specialty and gene therapy drugs.
• Consider Stop Loss Contracts with Perpetual NNL and Rate Caps: A practical recommendation for plan sponsors is to secure stop loss coverage that includes a perpetual No New Laser (NNL) clause and a Rate Cap, providing greater predictability and protection against sudden, massive premium increases following a large claim.
• The FDA Approval Process is Accelerating High-Cost Drug Entry: The report tracks the FDA approval turnaround time, suggesting that the pace at which these high-cost gene therapies are entering the market is contributing directly to the projected increase in financial impact on the healthcare system.

Tools/Resources Mentioned:

• Tokio Marine HCC 2023 Annual Market Report (The primary source of data and analysis).
• Pareto Health (Mentioned as a large benefits captive).

Key Concepts:

• Specific Deductible (Spec Deductible): The threshold amount a self-funded plan must pay per individual claim before the stop loss insurance coverage begins.
• Leverage Trend: The disproportionate impact of medical inflation on lower specific deductibles. If a deductible remains flat while medical costs rise, the carrier assumes more risk, leading to significantly higher stop loss premiums.
• Gene Therapy Solutions: Advanced pharmaceutical treatments, often curative, that target genetic diseases. These drugs are characterized by extremely high, often multi-million dollar, one-time costs.
• Perpetual NNL (No New Laser): A clause in a stop loss policy that prevents the carrier from applying a "laser" (an exclusion or higher deductible) to an existing high-cost claimant upon renewal.

Examples/Case Studies:

• Hemgenix: Cited as a recent example of an approved gene therapy drug (for hemophilia B) with a $3.5 million price tag, illustrating the financial risk posed by these emerging treatments.
• Tokio Marine HCC Client Tracking: Data showing that over 80% of clients either never raised their specific deductible or only raised it once in a five-year period, demonstrating the widespread issue of leverage trend mismanagement.