Is This Sleeper Risk Lurking in Your Benefits Plan?

Nov 29, 2016
business-163501_1280An explosion of incidence. You may be surprised to learn this is a phrase found in insurance jargon and not in blast physics. It seems even actuaries can’t resist hyperbole now and then. But it’s no exaggeration. In fact, it well captures the wild and exponential growth of new and expensive drug therapies in recent years. And it’s happened fast. Like Rip Van Winkle fast. You may think the metaphor isn’t apt but we’re telling you, it’s like settling in to sleep at a very manageable price point then waking up to a benefits cost radar screaming MANAGE YOUR RISK!!

But that’s not all. Insurers are abandoning some parts of the insurance business. Yup, that was the sound of the world, like Rip’s, turning on its head. We have a sea change taking place there’s little doubt and it’ll have you casting about and scanning the horizon for any familiar landmarks.

You might be forgiven for wanting to dive under the covers in Rip’s hollow, but stay with us and we’ll do some unraveling. Then we’ll close with an introduction to a new tool that will help manage this unfamiliar world of significant benefits risk management. On the way, we’ll try to keep the metaphors to a minimum.

Not so long ago in a land not so far away, drugs came to market and were costed at a very manageable price point that was somewhat manageable and absorbed into annual benefits inflation. But then biologics and other high cost drugs rode into town. In little more than ten years, we’ve gone from a handful of diagnoses and usages of these drugs to rampant proliferation of disease states, known as indications for drug use, and subsequent claims.

On top of this surge in claims, the price points don’t resemble anything like that of the last decade. New and expensive drug therapies now cost tens to hundreds and even millions of dollars per annum per plan member. These are shocking figures. We’ll say more in a future blog about drug price tipping points in the future but for now we hope we’ve grabbed your attention with this very serious stuff. So resist the urge to hide in that hollow and we’ll pull harder on a thread that uncovers the very real and problematic effect of runaway costs on plan sponsors…and indeed for benefit plan sustainability in general.

Benefit plans contain a growing component called Stop Loss Insurance. This is a fairly literal name for insurance that stops losses attributable to any one individual in your plan’s Extended Health benefits. Given the preceding discussion on exploding costs, it’s apparent how important this coverage is. Yet, in an odd twist, despite the relevance and growing need, some carriers are abandoning this part of the insurance industry because of the very same risk environment that gave rise to its presence in benefit plans originally. It’s a strange day when an insurance company says they don’t want to sell insurance.

In another troubling variation, we’re also seeing insurers increasingly use one way contract changes to existing plans. This is how it happens: at renewal, plan sponsors are unilaterally notified of a coverage change to the terms in existing contracts without any client discussion. Some have even tried to enact change mid term.

Even more alarming, and this may emerge as the real issue, is how Stop Loss may be handled by some insurers on an existing ongoing drug claim. Carriers are increasing Stop Loss levels with zero discussion with plan sponsors and applying these changes to existing claims. For example, you could have a recurring drug claim for $18,000, a typical Remicade claim, then let's say your insurer informs you today that your Stop Loss coverage is changing from $10,000 to $15,000. So now your plan will pay the first $15,000 of the claim instead of what would have been only $10,000 yesterday. And, the insurer has reduced their risk from $8,000 to $3,000. That’s right. An existing risk and coverage that you thought was permanent protection can change on an existing claim.

Another way to illustrate the problem is to compare it to an existing disability claim. Imagine an insurer declares, after many years of paying a monthly benefit to the claimant who purchased coverage in good faith, that because claims are higher than anticipated they now need to reduce the benefit. As the plan sponsor, you now pay the difference out of pocket to the claimant. It really is the same scenario.

And there you have it. It’s a real game changer. And it’s not very Canadian is it? But what is Canadian is the Risk Tolerance Questionnaire and Risk Conversation tool we at TRG have developed in response to this inflating area of significant exposure.

The benefit risk landscape is clearly shifting rapidly and the time for solid advice is here and now. Does your organization have protocols for risk management? Are you aware of these risks lurking in your benefit plan? And how tolerant or able is your organization to handle these risks? Call your TRG advisor today and find out how your answers to these questions can help insulate your plan from catastrophic failure with effective risk management decisions.

As for Rip’s rude awakening, let’s just hope we wake up to find, like a bad metaphor, it was all just a dream.
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