Is Your Stop-Loss Insurance Plan Putting Your Business at Risk?

We developed the term ‘Gibraltar Plan” to identify those plans that provide real long-term financial protection‚ which unfortunately is a rarity in the stop-loss industry. Our ‘Gibraltar Index’ assigns a numerical ranking, high or low, to each of the stop-loss plans that we are asked to review. By choosing a Gibraltar qualified stop-loss plan, you can rest assure that the often unrecognized and underestimated insurance risk under your self-funded health plan will be minimized as much as possible

The stop-loss insurance marketplace for partially self-funded health plans has become increasingly dominated by the buyers’ (and their consultants’) bottomline considerations, as if the policies are all commodities and only cost counts. This “race to the bottom,” as it is called, is a serious problem in the self-funding industry, since it rewards inferior products and—temporarily—the brokers and consultants who sell them, and these inferior products come from some of the biggest names in the stop-loss industry.

(It might be significant that a stop-loss company founded in 2015—largely devoted to the proposition that price was the key factor when selecting a stop-loss plan—has since folded.)

This pre-occupation with cost, as if all carriers and contracts are the same, is foolhardy and dangerous, but since really bad events in the self-funding world are infrequent, many employers blithely purchase their products and never have a severe problem or even know the potential liability they have unwittingly taken on.

There is a well-known and respected stop-loss carrier that has published online a paper on stop-loss coverage that states unequivocally that stop-loss coverage is NOT pooled (and thus the large claims of a client are not shared with other insured groups for protection). However, it then pointed out that such pooling for long-term protection from lasers and unreasonably large rate increases was in some cases available from captive insurance arrangements—and if a group wished long term protection it should go there! In what other industry do large important companies send potential customers to competitors if they do not want buy a defective product? (Sadly that is what a traditional stop-loss policy is for a client needing real financial protection.)

We have created a designation for a stop-loss plan that provides the contract that most self-funded plans need but too often don’t know it. That designation is a Gibraltar Stop-Loss Plan. It has several component parts but the most important one is long-term protection.

The purpose of this website is to find and then list plans that fit the description of such a Gilbraltar plan so that brokers and consultants can know where to find these plans. The owner of this site, Self-Insurance Expert, in some cases has a role in selling a given plan, but in other cases it does not. (This is all fully disclosed.)

Most buyers of stop-loss insurance at the client end are ill-equipped to read carefully the stop-loss contract and understand the nuances and potential pitfalls. Beyond that, the industry norm for a stop-loss option from the broker or consultant is a spreadsheet of numbers that all-too-often only looks at the costs and provisions for the next twelve months. For employers that are not a “small group” under applicable state law—and so don’t have a guaranteed health plan to switch to if necessary—there is no safety net.

The Problem Needs To Be Fixed

What happens if the client’s financial viability—to the point of bankruptcy— is jeopardized because it joins the growing list of employers that have horrendously high ongoing claims and the stop-loss carrier in reaction does not renew them or imposes a catastrophically high laser (i.e., a separate high deductible that applies to just one person in the group) of millions of dollars? Where does the client go if no other stop-loss carrier or fully insured plan is willing to offer coverage? There are many horror stories about this problem.

That is when the client discovers that it was a trapeze artist without a safety net and just did not realize it.

Ultimately in a broad-brush fashion it may be concluded that the stop-loss industry considers the long-term needs of the stop-loss buyer to be an UNINSURABLE risk, thus the focus on one-year contracts that give the stop-loss carrier an out if claims turn bad.

  • How many employers have been led to believe that self-funding their health plan is a relatively risk-free endeavor since specific and aggregate stop-loss insurance protects against signficant financial risk to the employer?
  • What if the employer had been told that its stop-loss carrier considered the risk to protect that employer in a high-claims worst case scenario—when no other carrier would want them—as uninsurable and would transfer that risk back onto the employer? 
  • Might that statement have resulted in a different decision?

Unfortunately that reality check almost never takes place.

Rest assured, there is a solution.

There is a solution. A Gibraltar Stop-Loss Plan is a contract that pools its renewals so that the catastrophic ongoing claims are absorbed by the pool and shared by other members of the pool—that happens to match the original definition of insurance, which is taking a relatively small amount of money from the many to pay for the claims of the few.

It should be noted that the industry does have its own ostensible solution for this problem. Most stop-loss carriers will offer for about 6-8% more in premium, a No New Laser | Rate Cap (NNLRC) option.  The rate cap will generally limit the renewal cost increase to no more than 30-50+% (see below). Thus in a case of hemophilia, with hypothetical ongoing claims of $1 million per year or more, the claimant would not have a laser imposed on renewal and the overall stop-loss premiums would not go up more than an agreed-upon percentage.

According to the 2019 Milliman stop-loss survey, the industry’s breakout of rate caps is as follows:

This in fact is an excellent solution—for one year only. Very few stop-loss carriers will offer to guarantee the NNLRC rider past the first year. Thus in the rare case where the claims are ongoing, the client has only delayed financial catastrophe by one year. Since the advent of the Affordable Care Act, which created unlimited lifetime maximums—and directly led to multi-million dollar claims (some in excess of $10 million)—along with the explosion of hyper-expensive specialty drugs, the risk of potentially catostrophic claims is only getting worse and many of them can be multi-year high claims. The consulting firm Mercer discussed this problem in their 2019 article “How Big Can Big Claims Get?”:

“Claims $10 million, $20 million or bigger are hitting employers like bolts of lightning, blowing up self-insured health budgets. Most often, these claims are driven by specialty drug treatments for rare, extreme conditions like hereditary angioedema and hemophilia. . . .Historically, large claims for organ transplants or premature infants would spike and then recede. Once the underlying condition resolved itself, claims would usually drop in the following years to a more manageable level. But that pattern is changing as more claims spike and then stay at that level. Because the drug treatment protocols for conditions like hereditary angioedema and hemophilia are more maintenance-like than curative, those $10-$20 million claims are becoming annuities.”

It should be noted that Plan Sponsors do not need to roll over and just accept such high claims. While there is no magic wand to reduce high claims, there are important cost containment strategies to challenge such large claims.