The 2025-2026 Stop-Loss State Of The Union | with Jay Ritchie

This video provides an in-depth analysis of the 2025-2026 stop-loss insurance market, delivered by Jay Ritchie, President of Tokio Marine HCC. The central theme is the transition into a "tightening, hardening market" characterized by double-digit rate increases for average-risk employers. Ritchie, drawing on his 32-year career in the industry, attributes this shift primarily to a massive increase in claims severity and frequency, particularly at the catastrophic level (claims exceeding $2 million). The conversation establishes that the core stop-loss product remains simple, but the underlying risk—the complex U.S. healthcare system—is driving volatility.

A significant portion of the discussion focuses on the post-Affordable Care Act (ACA) environment, which eliminated lifetime and annual maximums, leading to truly unlimited risk and an exponential growth in multi-million dollar claims. Ritchie shares striking data, noting that claims over $2 million are disproportionately driven by infants under 10 (accounting for 40% of the total spend in this category), primarily due to premature births and congenital abnormalities. Furthermore, the market is profoundly impacted by the emergence of ultra-high-cost gene therapies (e.g., Zolgensma for spinal muscular atrophy, Elevidys for Duchenne muscular dystrophy), which carry gross price tags exceeding $2 million. These therapies, while often curative, contribute to the unpredictability and rising cost of catastrophic risk, forcing carriers to adjust pricing and terms.

The path forward, according to Ritchie, centers entirely on data and active risk management. He argues that the insurance sector, historically slow to adopt technology, is uniquely positioned to leverage data due to its core competency in data analysis (being staffed by underwriters, accountants, and actuaries). The future of underwriting involves moving beyond 12-month predictions to 24- and 36-month risk forecasting, requiring access to granular first-dollar data and drug data. This enhanced data environment would allow carriers to move away from adversarial pricing models toward long-term partnerships, offering better rates to employers who actively manage risk through transparent PBM contracts, optimized networks, and robust claims review processes. The speaker emphasizes that stop-loss carriers are essentially "placing bets" on which risk management programs will perform best, incentivizing innovation and performance among third-party solutions.

Key Takeaways:

• Market Hardening and Rate Increases: The stop-loss market is definitively entering a tightening phase. Average-risk employers should expect double-digit rate increases going forward, a significant shift from the single-digit increases seen in softer markets. Only the top 10% of best-performing risks will likely secure single-digit renewals.
• Explosion of Catastrophic Claims: Claims exceeding $2 million have seen exponential growth since the ACA eliminated coverage caps. This severity is heavily concentrated in two areas: high-cost gene therapies (curative but priced in the multi-million dollar range) and NICU stays for infants under 10 with congenital abnormalities, which account for 40% of the $2M+ spend.
• Impact of Gene Therapies: The development of gene therapies has fundamentally changed the risk profile. Since coverage is unlimited, manufacturers can price drugs at $2 million or more, a market that wouldn't have existed pre-ACA. Understanding the prevalence and cost of these specific drugs (like Zolgensma and Elevidys) is critical for risk modeling.
• Data is the Future of Underwriting: The industry needs to transition from conservative, pessimistic underwriting (assuming the worst with limited data) to data-driven precision. Underwriters require access to first-dollar claims data and comprehensive drug data to build predictive models that forecast risk 24 to 36 months out, enabling more stable, long-term pricing.
• Leverage Trend is Driving Cost: A major factor in rising stop-loss costs is the failure of employers to consistently increase their specific deductibles. When medical trend increases (X) while the deductible (Y) remains stagnant for four or more years, the delta (leverage trend) grows, pushing more claims and higher costs onto the stop-loss carrier.
• The Problem with Wrap Networks: For truly out-of-area or infrequent claims, using a quick wrap network is often inefficient. The speaker advises against automatically applying a network discount, preferring to negotiate those claims as out-of-network to achieve better cost containment results, as network contracts often protect inflated pricing.
• Decommoditizing Stop-Loss: Employers and consultants must treat stop-loss carriers as partners, not commodities. Carriers are willing to invest in and support clients who demonstrate active risk management (e.g., transparent PBMs, high-performance networks). Treating the carrier as a commodity results in commodity-level service and less flexibility when claims go wrong.
• Innovation is in Risk Measurement: True innovation in stop-loss is not in the core product structure (which remains basic financial reinsurance) but in the methods used to rate and measure risk. Carriers are placing bets on vendor performance and actively seeking data to validate which cost containment solutions (like Veilance or HPC) genuinely impact claims.
• Captives as a Stability Vehicle: Captives have grown significantly because they offer employers a community for shared risk and active management, mitigating the "lone wolf" fear of self-funding. High retention rates (often 95%+) in captives demonstrate their value as a sticky, sustainable model for managing volatility.
• Focus on PBM and Claims Review: The most actionable advice for employers seeking better stop-loss outcomes is to secure a truly transparent, pass-through PBM contract focused on lowest net cost, and ensure that the TPA or claims manager has a robust process for reviewing and "cleaning up" potentially abusive or erroneous claims (e.g., duplicate charges, excessive infusion costs).

Key Concepts:

• Stop-Loss Insurance: Financial reinsurance that protects self-funded employers from catastrophic claims exceeding a specific deductible (Specific Stop-Loss) or total annual claims exceeding a certain aggregate limit (Aggregate Stop-Loss).
• Leverage Trend: The mathematical phenomenon where a fixed deductible absorbs a decreasing percentage of rising healthcare costs, causing the cost trend above the deductible (the stop-loss carrier's risk) to increase disproportionately.
• Hardening/Tightening Market: An insurance market cycle characterized by rising premiums, stricter underwriting terms, reduced capacity, and less favorable contract provisions (e.g., elimination of experience refunds).
• Contingent Laser: A specific exclusion (laser) applied to a high-risk member, contingent upon a specific condition or treatment protocol. The speaker expresses dislike for vague contingent lasers, preferring to use known risk management programs to mitigate the potential claim instead.

Examples/Case Studies:

• Gene Therapies: Zolgensma (spinal muscular atrophy) and Elevidys (Duchenne muscular dystrophy) were cited as examples of curative, multi-million dollar drugs driving claims severity.
• NICU Claims: Claims for premature babies and full-term babies with congenital abnormalities are the leading driver of claims exceeding $4 million, highlighting the high cost of medical innovation and life-saving care for infants.
• Cost Containment Vendors: Veilance and HPC (High Performance Claims) were mentioned as vendors that have shown good results in cost management, with Veilance focusing on pre-adjudication and HPC on aggressive post-payment negotiation and claim cleanup.