Why do self-funded employers need supplemental stop-loss insurance?
Picture this scenario: As a business owner, you have decided to forgo the traditional insurance bundle and self-insure to control costs, adhere to fewer regulations, and offer customized benefits. You set your plan budget at $500,000 to cover all 500 of your employees and their departments. After your plan is set in motion, one of your employees is diagnosed with Hypophosphatasia and requires STRENSIQ®, a specialty drug used to treat this medical condition. The annual treatment costs more than $800k, well over your entire insurance plan. With this claim hitting your plan, you max out your carefully calculated budget before the end of the year.
Here is where stop-loss insurance comes into effect. A traditional stop-loss contract provides excess coverage outside your original budgeted amount to protect your business from unforeseen medical and pharmacy claims.
Simply put, stop-loss insurance is a way to protect companies from the unknown. For self-insured employers, this coverage is a critical tool to saving their business from large healthcare claims that can financially devastate their benefits plan.
As the name suggests, stop-loss insurance stops a self-insured company’s potential losses. This type of coverage limits an employer’s liability by placing a cap on their medical and pharmacy expenses. Costs incurred outside of the contracted limits are covered by the stop-loss carrier. This limited liability minimizes and oftentimes eliminates the risk of catastrophic claims for businesses that choose to self-insure.
Unfortunately, due to the volatility of pharmacy spending, stop-loss insurance premiums are rising rapidly. In addition to paying high premiums for traditional stop-loss, employers can still find themselves at risk due to a practice known as lasering. Lasering occurs when the stop-loss carrier assigns a higher specific deductible for a member based on a known condition, since that individual poses a higher risk for catastrophic healthcare costs than other employees. The insurance carrier adjusts the coverage for that one claimant, raising the maximum out of pocket, to later be paid by the employer. This leaves the plan vulnerable for future claims. Given that many specialty medications are used to treat chronic conditions, the plan’s risk of long-term exposure for lasered members is very high.
Protect Against Large Specialty Therapy Claims
Supplemental stop-loss insurance is designed to protect against large specialty drug claims. Specialty drugs used to treat expensive medical conditions have only increased in price and utilization. In fact, there was an 8.3% increase in the average number of specialty drug claims from 2019 to 2020 alone. Overall, 4% of the population utilizes at least one specialty drug.
Self-funded employers need to invest in coverage that can offer comprehensive protection. Supplemental pharmacy-specific stop-loss insurance is key to diminishing the financial threats of these specialty claims.
Save Your Bottom Line
The rise in specialty medications has made it increasingly difficult for employers to offer a high-quality plan for their members at an affordable rate. In 2020, specialty prescription drug prices increased by an average of 4.8%, which is 3x more than the general inflation rate for that same period. Specialty drugs typically have small target patient populations, frequent dosing adjustments, and often limited distributions, helping to fuel the rising costs of specialty drugs.
One large specialty claim can easily bankrupt an entire insurance plan, leaving the employer completely exposed. All it takes is one new drug start to easily double, triple or even quadruple a self-funded plan’s annual drug spend. Stop-loss insurance is an investment, but the payout can save your company’s bottom line from breaking the bank with catastrophic drug claims.
What Else Can Stop-Loss Do for Self-Insured Businesses?
Stop-loss insurance is becoming a necessity for self-funded employers; however, this traditional coverage comes with limitations. Stop-loss contracts are usually limited to one year and often incur significant rate increases following large claims. Or the employer may see their protection disappear as a result of lasering. Fortunately, a supplemental insurance solution is available that offers multi-year protection.
RxPharmacy Assurance’s supplemental stop-loss insurance compliments existing stop-loss policies and offers long-term protection that extends beyond traditional coverage and helps employers mitigate the risks associated with very high-cost specialty drug claims.
Are you ready to start protecting your self-funded clients? Get started by filling out the contact form below: