The boom in employer self-funding is coming along with many more catastrophic claims, raising concerns for insurers bundling third-party administrative services and stop-loss coverage.
Sun Life Financial, the country's largest independent underwriter of stop-loss insurance, has seen a tenfold -- or 1,000 percent -- increase in catastrophic claims of $1 million or more over the last four years.
"In 2013 alone, we paid more than double the number of individual $1 million or more catastrophic claims compared to the prior year," said Karin James, assistant VP of strategic operations for Sun Life's stop-loss business, in a report on the trends.
"We anticipate costs will only continue to rise as new technologies are adopted, advanced drug therapies are introduced, and the Affordable Care Act increases access for participants," said James.
Between the beginning of 2010 and the end of 2013, self-funded employers with Sun Life stop-loss policies and up to 100,000 employees filed over 100,000 claims that led to reimbursement of more $1.9 billion. Those employers also paid $2.4 billion for first dollar expenses before the stop-loss attachment points were reached.
Among the most expensive conditions for which Sun Life paid out catastrophic claims over the past four years were cancer (costing $506 million), kidney disease ($164 milion), congenital problems ($86 million) and premature births ($70 million). Cerebrovascular disease and heart failure were also costly, together accounting for $100 million in catastrophic claims.
The trend of increasing stop-loss claims is only bound to continue in new health reform market and as more employers are drawn to self-funding and providers offer patients new and advanced treatments, Sun Life analysts argue.
"Due to the removal of lifetime maximums, the catastrophic claims and the conditions associated with them have no cost ceiling," they wrote. "In addition, it is possible that increases in hospital-billed charges and advances in medical technologies will contribute to a greater number of $1 million claims in the future."
The rise of self-funding has come as the ranks of full-risk commercial market declines, leaving insurers looking to stay in the group business with more reasons to pitch stop-loss products along with third party administrative services.
Last year, Aetna decided to extend its self-funding suite of TPA services and stop-loss to mid-size employers with between 100 and 500 employees.
"Employers are looking for consistent payments and simple plan administration," and so Aetna started offering self-funded employers "one monthly payment that includes all administration fees, stop loss premium and claims liability charges," as Jill Serin, head of Aetna's middle market business, said at the time.