As healthcare costs continue to rise and become less predictable, benefits and finance leaders at U.S. professional service firms are increasingly looking to fine-tune risk transfer strategies for their self-insured medical plans. This renewed attention is driven by a confluence of factors, most notably the growing prominence of GLP-1 drugs for treatment of diabetes, obesity, and other conditions, as well as the emergence of revolutionary gene and cell therapies.

While this insight will focus on self-insured plans – an arrangement where the firm pays claims from its own assets rather than paying premiums to an insurer – firms with fully insured plans should monitor their renewals and review their insurer’s stance toward emerging treatments.

In an environment where a single plan participant can incur millions of dollars of healthcare expenses in a year, most professional service firms with self-insured health plans do not take on all the risk themselves. They employ a risk transfer mechanism known as individual stop loss insurance where the self-insured plan is indemnified for each participant’s expenses above a certain threshold, typically between $250,000 to $1,000,000. This protection can prove very useful in a variety of situations, such complications with a newborn, a lengthy hospital stay, advanced cancer treatments, or a participant taking medications for chronic conditions like hemophilia.

Deductible levels vary by firm and are influenced by number of plan participants, revenue, loss history, and risk tolerance. Individual stop loss coverage is unlimited, so there is no cap on reimbursements even though healthcare costs increase every year. This creates a phenomenon called “leveraged trend” where the cost to renew a stop loss policy at the current deductible level is typically over 10%, even with normal market conditions and a favorable loss history, because keeping the deductible the same is essentially purchasing more coverage.

Stop loss coverage periods are typically 12 months and renewals are delivered only two or three months before the effective date. It is important that plan sponsors work with their actuaries and brokers upon every renewal to:

• (Re)evaluate the deductible based on the plan’s performance and market conditions.
  
  
• Understand the “claimants of concern”, particularly their diagnosis, prognosis, and any authorized medical treatments and/or prescription drugs. Stop loss carriers may set higher deductibles for certain participants (“lasers”) or exclude them from stop loss coverage entirely.
  
  
• Ensure policies contain “mirroring” language. Like the principle of follow-form, mirroring means that a stop loss policy will reimburse any eligible losses approved by the underlying health plan.
  
  
• Review the current and proposed stop loss carrier’s approaches toward gene and cell therapies and organ transplants. Some carriers will attempt to laser or exclude claimants with indications for transplants or gene therapies.
  
  

Aggregate stop loss, another type of stop loss coverage, caps total claims expenses for the entire plan at a predetermined threshold, typically 125% of the expected cost. While this coverage is inexpensive and can provide peace of mind, it contains limitations that may make reimbursement unlikely.

Larger accounting and consulting firms may have established a captive insurance company for certain professional liability or other business risks. It may also be prudent for a captive to participate in its parent’s individual stop loss program.

For example, rather than purchasing stop loss coverage starting at $500,000 per claimant, the firm could cede per claimant losses in excess of $500,000 to the captive (e.g., captive covers $1,000,000 excess of $500,000 per claimant), which could subsequently reinsure per claimant losses at a much higher attachment point (e.g., $1,500,000). Such an approach could lead to significant premium savings for the firm, as well as risk diversification and potential tax efficiencies for the captive.

The U.S. Food and Drug Administration defines gene therapy as a technique that modifies a person’s genes to treat or cure disease. When these therapies were launched in 2018 and 2019, employers of all sizes were concerned about the financial impact of treatments with price tags in the seven figures.

This led to the development of several subscription solutions where the employer would pay an ongoing per capita fee in lieu of paying for the gene therapy treatments that could be incurred in the future. While these solutions are most popular among employers with no existing stop loss coverage, there is a secondary use case for employers with stop loss coverage that are concerned about their carrier’s stance toward these treatments.

Aon’s Health Solutions practice is home to over 220 credentialed actuaries and actuarial students as well as a suite of predictive modeling tools aimed at helping clients make better decisions around managing risks in their self-insured health plans. This often includes strategic procurement of stop loss coverage as well as evaluating alternatives to stop loss.

One such predictive modeling tool is Aon’s Health Risk Analyzer, which can identify potential cost drivers and develop tailored strategies to mitigate financial exposure.

Aon also recently partnered with a specialized financial services provider to launch a credit-based solution that can complement or even replace stop loss coverage. In the anticipated use case for all but the largest firms, the plan would retain its stop loss coverage for low-frequency high-severity claims and draw upon a specialized credit facility to help smooth cash flow when medium-frequency medium-severity claims emerge.

Unlike stop loss, the credit line is underwritten based on the firm’s credit profile, not its participant demographics or claims experience. This solution could also be of interest to firms that struggle with stop loss reimbursement timing or lasered claimants.

Rapidly rising costs and volatility have compelled professional service firms to explore innovative strategies to mitigate their financial exposure and ensure the sustainability of their healthcare offerings.

Contact

For more information about health risk transfer strategies and how Aon can help, please send an email to [email protected] or reach out directly to Mark Scarafone or Jake Delman.





Mark Scarafone
Senior Vice President and Health & Benefits Leader
Radnor, PA







Jake Delman
Senior Consultant
Washington, DC