Stop-Loss Claims Grow with Advanced Care
Q&A with Tara Krauss, Head of Accident & Health, QBE North America
QBE North America is a global insurance company that offers specialty, commercial, personal and reinsurance products. Krauss discusses its annual stop-loss report and how COVID has impacted, and will continue to impact, claims and healthcare costs for the next few years.
Q
What did you find to be the most salient points of the 2022 study? Were there surprises, or did you anticipate most of the results?
A
Our inaugural report was done in 2020, and [the latest report] was data from 2021. What we found was the frequency of claims for COVID more than doubled in 2021. We didn’t anticipate a lot of stop-loss claims for COVID in 2021. We were wrong, but so were others.
When the initial lockdown orders were issued, the highest-cost claims were being seen among older people, who aren’t typically covered by employer-sponsored insurance. But with an increasing number of variants and the continued lockdown, COVID became more severe among younger populations, which was surprising. The costliest claim we saw was billed above $15 million and repriced to $5.6 million. Those were shockers for sure. But due to treatment advancement and less severe variants, things have settled, and we don’t expect that kind of impact from COVID going forward.
As far as general highlights: for claims over $200,000, the frequency increased 17% from 2020 to 2021, respiratory claims nearly doubled as a consequence of COVID, neoplasms were up 21%, and mental health dropped 15%. Circulatory and heart claims fell, too, which was interesting to us, but that was likely due to stay-at-home orders or putting off scheduled procedures.
Q
What trends can you extrapolate from these numbers? Are you able to see patterns yet, post COVID?
A
We have been looking at claim frequency trends, and in late 2022 and into 2023 we did see a bump in quarter two, around August and September of the 2022 plan year. We saw a significant spike in those months and equate that to care coming back to pre-COVID times and making up care that was missed. Early this year, in the first quarter of 2023, we had lots of heart and circulatory claims. Since we had seen a dip in circulatory claims previously, it’s not surprising to see an excess now related to that.
Claim development patterns were unusual this past year; even actuaries were intrigued by the patterns, and I think that is due to the disruption of COVID.
Q
What about claims directly related to COVID-19? Have those dropped as the pandemic has waned?
A
Yes, claims for COVID have settled down as new variants have slowed and people can be treated quicker and more effectively.
“Expensive therapies are the biggest buzz in our space, and employers are looking at every way to reduce costs and save. There are upwards of 1,000 new cell and gene therapies in development worldwide, and the market is expected to triple in the next five years.”
Q
What about claims unrelated to COVID? As people get conditions managed again, do you anticipate numbers will lower?
A
We don’t anticipate a slowdown in claims unrelated to COVID. There is no reason to believe that frequency and severity will slow, and there are a number of factors contributing to that.
First, what helped claims drop during the pandemic years was a deferral of care. When care is delayed, diseases have a greater chance to develop and progress, leading to more costly treatment in the future.
The second piece to consider is medical inflation [the increase in costs year over year]. Medical inflation has lagged since COVID, but we anticipate that it will further increase the cost of claims at all levels. Many providers’ contracts have yet to be renegotiated post COVID. Those contracts typically last three years, and as they come up for renewal, hospitals will want to account for their higher costs in labor and medical supplies and equipment. Hospital EBITDA were reportedly down by as much as 50%, and they will look at ways to make up for those losses during contract negotiations with health networks, which we will see flow through on claims.
Third is investments made to advance treatments. Expensive therapies are the biggest buzz in our space, and employers are looking at every way to reduce costs and save. There are upwards of 1,000 new cell and gene therapies in development worldwide, and the market is expected to triple in the next five years. The cost of some of these therapies can be well over $1 million. The FDA is expected to approve about 70 new cell and gene therapies by 2030. This past year, they approved six CAR-T cell therapies [also known as chimeric antigen receptor T-cell therapy, used to treat blood and some other types of cancers] alone.
Organ transplants are also on the rise. In 2022, more than 40,000 transplants were expected to be performed in the U.S. That speaks to the availability of—and advancements in—that care, which can lead to stop-loss claims.
Q
Were there specific areas where the claims data were surprising?
A
Heart and circulatory claims fell during COVID, which was a surprise. But right now, if you look at early 2023 claims, we are seeing a resurgence in heart-related claims, so that condition is making a comeback now in the data. When we do our next analysis, it will be interesting to see what happens with heart claims, but I expect them to be at pre-pandemic levels or higher.
Neoplasms were up 21%, and if you look at all claims higher than $200,000, neoplasms made up 41% of all those claims on our book. They were the leading cause for our stop-loss claims. Reports from some of our competitors suggest the same: neoplasms are a leading driver of stop-loss claims. Again, that’s driven by medical inflation, evolving treatments and advancement in therapeutic needs. When treatment is deferred, as it was during the pandemic, the disease is usually caught at a progressed stage that typically requires more advanced treatment, ultimately at an added expense. Outcomes often aren’t as good as when you catch a disease in the early stages. So, if for example, you have stage-one breast cancer, you may end up having a lumpectomy. If you catch it at stage three, you have a lumpectomy, radiation and chemotherapy, and drugs later like tamoxifen. The patient’s experience and the cost of care worsen.
Q
Mental health claims dropped, which was surprising, considering all the issues during the pandemic. What are you seeing in that space right now?
A
There is a little bit of a twist there because they dropped below the levels of 2020, which had more than doubled from 2019, but they are still up from pre-pandemic levels. Remember, that is specific to our book of business and what claims trends showed.
I would be shocked if mental health related claims are back down to pre-pandemic levels any time soon. In this report, we found the frequency of mental illness claims in 2019 was 0.6 per 10,000 employees. In 2020, it was up to about 1.4 per 10,000 people and then in 2021 slightly down to 1.1 claim per 10,000. That was for claims in excess of 200,000, so the data obviously considers the most serious issues that involve inpatient stays. If that trend is still high, it’s safe to say employers are seeing increases at lower dollar amounts as well and should be thinking about how to manage it.
Q
Some reports have shown premium rates at renewal are up about 10% this year. Is that where you are standing, too?
A
Pre-COVID, we were in double digits because of inflation and the other trends, and we just completed our January renewals and were over 10% as well.
Q
What about dollar amounts of claims? Reports have shown that they are generally rising as well.
A
Claims were up both in frequency and severity in 2021. One measurement on cost was largely focused on cancers. The frequency increased by 20%, and severity [cost] was up by 6% over what we saw in 2020.
Q
What kind of cost-containment actions should employers be thinking about considering the claims data? Where can they focus efforts in the next couple of years?
A
Site of care for infusion therapy may be a good place to start by considering non-facility settings to reduce costs. Ordering the treatment through a specialty pharmacy to be administered at home either by the patient or a home health aide can save the plan considerably while also improving the patient’s experience. Instead of spending time and energy to travel and wait for treatment at a facility, the patient receives treatment in the comfort of home.
“There is a ton of waste in the pharmaceutical ecosystem, which is a leading charge for employer health plans. Employers should look to utilize transparent specialty pharmacies rather than a traditional pharmacy benefits manager and partner with a plan administrator focused on cost containment aimed at reducing waste.”
There is a ton of waste in the pharmaceutical ecosystem, which is a leading charge for employer health plans. Employers should look to utilize transparent specialty pharmacies rather than a traditional pharmacy benefits manager and partner with a plan administrator focused on cost containment aimed at reducing waste.
They should also strongly consider unbundling their program—a plan administrator and stop-loss carrier should be independent of each other. That can help in a lot of ways. A strong stop-loss carrier should provide both proactive and retroactive cost containment support; they can support the benefit plan in review of egregious claims.
Finally, patients who are considered to have comorbidities are becoming more prevalent. That was a driving factor in why we saw such an uptick in COVID claims among the younger generations. As the more infectious variants started to develop, we were seeing it hit younger generations, and I think it’s common knowledge now that if people had comorbidities they were at far greater risk of serious illness. This includes obesity and diabetes, and the younger generations are not immune to that. Obesity has increased from one third of the population to about 40% of adults in the past two decades. And during the pandemic we saw greater stress-related eating and drinking, which led to reports of increased body mass index. The comorbidities poured the fuel, and COVID lit the match.
This speaks to the overall health of the U.S. population and how it is impacting employers’ health plans and stop-loss claims. Many stop-loss claims, outside of genetic conditions, are largely driven by lifestyle factors. Employers should focus on overall population health and influencing that through wellness coaching and whatever behavioral health offerings they can provide. Make it affordable and accessible to lead a healthy lifestyle. The more engaged an employer group is with their health plan, the better off their results can be.
As discussed, we don’t anticipate stop-loss claim frequency or severity declining. The medical stop-loss market has grown to close to $30 billion, and loss ratios in this space have climbed for the last decade. Employers really need to focus on managing first-dollar claims. Stop loss is a small piece of the overall healthcare expense. And the excess loss carriers are far downstream and thus don’t have the ability to impact first-dollar claims.
But I cannot express enough the importance of employers’ partnering with a stop-loss partner with a strong underwriting and claim payment reputation so they know that, when they do have a claim, we are there to support them in a challenging time. We are working quickly to get funds back to the employer groups so the impact of a member’s health crises doesn’t have a financial impact on their business.
