Life and health insurers’ net premiums for stop-loss have more than doubled in the last six years, jumping from $6.7 billion in 2011 to $14.3 billion in 2016 as employers shift towards taking on more health care risks after the introduction of the Patient Protection and Affordable Care Act (ACA), according to A.M. Best.
The rating agency examined the impact of ACA on the U.S. life and health insurance market, in a special report on the growing stop-loss insurance market, and found that ACA caused many accounts to transition from fully insured to self-insured resulting in revenue losses for health carriers.
The ACA came into force in 2014, giving an additional 20-24 million people health insurance by 2016 after expanding Medicaid eligibility, introducing new taxes, cutting Medicare provider rates and introducing Medicare Advantage.
“Insurers have been attempting to find solutions to deal with the additional financial responsibilities associated with ACA by evaluating the amount of risk they currently shift to their health insurance providers against their financial capacity to bear some of that risk themselves,” explained A.M. Best.
To offset their revenue loss, health carriers have been more aggressive in pursuing stop-loss premiums, resulting in a period of intense growth for this product type.
“Although, stop-loss revenue remains relatively modest compared with commercial group premiums, the rate of growth in the stop-loss segment has been significantly higher than that of the commercial group over the last five years, mainly due to the relatively low and stable stop-loss product medical loss ratio,” said A.M. Best.
The medical loss ratio for stop-loss grew from 75.4% in 2015 to 78.7% in 2016 after the number of claims exceeding $1 million more than doubled from 2012 to 2015, A.M. Best said.
Currently the stop-loss market is dominated by just 10 firms which hold over 70% of total net premiums earned in each of the last three years; the last two years have seen a number of acquisitions, with non-U.S. firms showing significant interest in stop-loss products, given the sudden spike in demand, the rating agency said.
And M&A activity could continue as higher loss ratios and lower underwriting gains in the stop-loss segment give carriers with larger and more efficient expense structures the upper hand.
ACA is still the biggest force currently shaping the U.S. health insurance market, creating a large-scale shift in types of health re/insurance products purchased and opening up new opportunities for stop-loss product sales.
In the near the shift from full risk to self-funded arrangements could slow, resulting in decline in stop-loss segment growth, but A.M. Best said that regardless, “stop-loss is likely to remain one of the few segments of the health insurance market with relative stability and less regulatory risk.”
