High Cost Claims for Health Care Payers

Many of you probably are not familiar with the complexity of the US health care payment system.  There are government programs that pay for over half of health care at this point, but they do so largely through contracts with private health plans.  And most people are still covered by employment related private health plans, many of which are self-insured, that is, the employer bears the risk on the costs incurred by covered persons.  Those employers and health plans are generally financially solid and can handle most costs, but like any insurer, they are concerned about unusually high cost claims.  Except for the very largest payers, like a UnitedHealth Group, the private health plans and the self-funded employer plans buy reinsurance or stop-loss coverage to protect against individual large claims or aggregate costs that exceed projections.  Because reinsurers are typically only seeing very large claims, they have good visibility into trends for those big-dollar items.  Sun Life is a large stop-loss provider and releases a regular report on these claims.   (Sun Life Report)

This year’s report is largely a continuation of prior trends.  Ten conditions account for over 70% of all spending on high-dollar claims.  The number one and number three condition is cancer, driven by the increasing number of very expensive specialty drugs for treating various cancers.  Heart disease is number two and gaining.  Orthopedics, newborn care, often for congenital conditions or preterm births, respiratory, sepsis, and neurological conditions also are in the top ten.  Much of the cost underlying these big dollar claims is for specialty drugs–those that are infused or injected, often complex biologic molecules.  One of these drugs has an average cost for a round of treatment of over $800,000.  Among other things, there is no way the price is justified.

20% of employers had at least one member with a million dollar claim, and the number of such claims has risen by 45% in just four years.   The highest single claim, at almost $5 million was for a newborn and these claims have the highest average cost.  The report includes many details on the conditions leading to high claims.  If you wonder why health care spending is high and rising, these large claims account for much of the increase.