High-cost Claims

For most self-funded employer health plans and many commercial payers, reinsurance and stop loss coverage limits their financial risk.  Sun Life is a large provider of that insurance and has for several years issued a report on the kinds of large claims that tend to incur a reinsurance payout and this year’s report was just released.   (Sun Life Report)   From 2015 to 2018 Sun Life paid $3.5 billion in claims, with the total value of those claims being $7.9 billion, indicating that reinsurance was covering over 40% of the total cost.  31% of payments were related to the top three conditions and 51% to the top ten.  The top two conditions were both cancer-related and the third is serious kidney-disease.  Others in the top ten included congenital anomalies, transplant, septicemia, issues related to newborns (mostly for premature births), medical care complications, hemophilia and cerebrovascular disease.  Of all the employers purchasing stop-loss coverage issued by Sun Life, 85% had at least one claim for reinsurance and about 70% had at least one for a cancer.  The overall list of top ten high-cost conditions, either by cost or prevalence, hasn’t changed much in the last few years.  Cancer is likely to affect about 38% of people during their lifetimes and over 1,700,000 cases were estimated to have been diagnosed in 2018.  Breast cancer was the most common cancer diagnosis in 2018, with around 270,000 new cases.  It is also the most expensive cancer to treat in total.  On a per case basis, lymphocytic leukemia has the highest cost, $258,000 per case.

Stop-loss or reinsurance coverage can vary by when the coverage kicks in.  The level at which the primary payer’s liability stops is called the deductible or attachment point.  Because different types of conditions have different average costs, employers or health plans with particular deductibles may see more or fewer claims for a particular condition.  $300,000 is the most common deductible for employers with plans covering over 1000 people, while $50,000 is the most common one for employers with plans covering 200 or fewer lives.  Those with higher deductibles are more likely to have claims for high-cost cancers, transplants and congenital anomalies.  A significant cost item for both primary payers and reinsurers is specialty drugs.  All injectable specialty drugs led to stop-loss claims of over $250 million in 2018.  Most of these are for cancer.  The report singles out emerging cell and gene therapies as an area for creating even more high-cost reinsurance claims.  Between 2015 and 2018, 742 people had a claim exceeding one million dollars for a year and 22% of employers had at least one person with a claim this large.  The number of people with claims over $2 million is rising very rapidly.  Cancer, congenital anomalies, transplants and hemophilia were particularly likely to produce these mega-claims.  Prolonged hospital stays, along with very expensive medications drove these claim costs.