The Tokio-Marine HCC 2025 Stop-Loss Report: 5 Key Takeaways

This video provides an in-depth exploration of the Tokio Marine HCC 2025 Stop-Loss Report, breaking down five key takeaways that illuminate the current hardening market for stop-loss insurance. The speaker, a self-proclaimed "stop-loss geek," aims to equip listeners with critical knowledge to navigate projected medical cost increases of 9-10% in 2025 and increasingly challenging renewals. The analysis delves into the specific trends driving these shifts, offering a granular look at the frequency and severity of large claims, the surprising cost implications of COBRA claimants, the prevalence of policy "lasers," and the crucial concept of loss ratio maturity.

The presentation systematically unpacks the report's findings, starting with diagnostic categories, differentiating between those most frequently leading to large claims (e.g., neoplasms/cancer, cardiovascular diseases) and those driving the highest severity costs (e.g., transplants, congenital anomalies, blood diseases like hemophilia). It then transitions to a striking analysis of large claims over time, revealing a dramatic increase in the frequency of multi-million dollar claims, which have necessitated a redefinition of what constitutes a "catastrophic" claim. The speaker attributes some of these trends to the impact of the Affordable Care Act (ACA), particularly the removal of lifetime and annual maximums, and the rise of expensive treatments like gene therapies.

Further insights are provided on the financial burden posed by COBRA claimants, who are shown to be significantly more likely to incur large claims than active employees, prompting a discussion on potential solutions for employers. The video also clarifies the concept of loss ratio maturity, explaining how a policy's loss ratio at different points in its term can predict its final outcome, which is highly relevant for renewal negotiations. Finally, the analysis covers the frequency of "lasers" (specific deductibles for named individuals) on stop-loss policies, comparing market averages with Tokio Marine's own practices and discussing the influence of "no new laser" provisions and captive insurance models. The overarching message is that the market is experiencing a significant rebound and hardening, partly due to underwriters misinterpreting the post-COVID cost plateau as normal rather than a unique event, leading to artificially suppressed rates that are now correcting sharply.

Key Takeaways:

• Hardening Stop-Loss Market: The stop-loss market is experiencing significant hardening, with renewals becoming tougher due to projected medical cost increases of 9-10% in 2025, a trend expected to continue for several years.
• Dramatic Increase in Large Claims: Claims exceeding $2 million are now 1,250% more frequent than in 2013, while $500,000 claims are up 250%. This necessitates a redefinition of "catastrophic" claims, with $1 million no longer considered exceptionally large and $2 million becoming the new benchmark.
• Key Diagnostic Cost Drivers (Frequency): Neoplasms and cancer consistently rank as the most frequent large claim categories, followed by cardiovascular, musculoskeletal, and digestive diseases. Nervous system diseases (e.g., Multiple Sclerosis, with expensive medications) have recently moved into the top five.
• Key Diagnostic Cost Drivers (Severity): Transplants remain the most expensive category, with congenital anomalies (e.g., malformations, premature babies in NICU) and blood diseases (e.g., hemophilia, often requiring costly gene therapies or ongoing medication) also being major drivers of severe costs.
• Impact of Medical Advances: Advances in medical technology, particularly gene therapies, are significant contributors to the rising cost and duration of large claims, as they often involve ongoing, expensive treatments rather than cures.
• High Cost of COBRA Claimants: Individuals electing COBRA are substantially more expensive on average than active employees. They are 13.5 times more likely to have a $200,000 claim, 14.1 times more likely for a $500,000 claim, and 15.5 times more likely for a $1 million claim, highlighting a significant risk for plan sponsors.
• Employer Solutions for COBRA: Employers should consider offering solutions or guidance to COBRA-eligible members to explore open market options. This can help mitigate the significant financial risk associated with retaining high-cost claimants on the employer's plan.
• Loss Ratio Maturity for Renewals: Understanding loss ratio maturity is crucial for renewals. The further into a policy period (e.g., 9 months), the more predictable the final loss ratio becomes, allowing stop-loss carriers to price renewals more accurately and potentially less conservatively.
• Laser Frequency Trends: On average, about one in four policies in the market has a "laser" (a specific deductible for a named individual), with an average of one laser per policy. However, carriers like Tokio Marine HCC demonstrate significantly lower laser frequency, suggesting better data, larger case sizes, or higher risk tolerance.
• Influence of "No New Laser" Provisions: The growth of "no new laser" provisions and captive insurance models is likely contributing to a slight decrease in the overall number of policies that have lasers placed on them.
• Post-COVID Rebound Effect: The current market hardening is exacerbated by stop-loss underwriters having viewed the cost plateau in 2021-2022 (due to COVID-related deferral of care) as normal credible experience rather than a unique event. This artificially suppressed rates, leading to a more severe "boomerang" effect now.
• Contributing Factors to Rising Costs: Beyond medical inflation and large claims, other factors include supply and demand dynamics, lower Medicare reimbursements shifting costs to the commercial sector, and the post-COVID rebound in healthcare utilization.

Key Concepts:

• Stop-Loss: Insurance that protects self-funded employers from catastrophic claims.
• Laser: A specific, higher deductible applied to one or more named individuals on a stop-loss policy, carving out their exposure.
• Loss Ratio Maturity: The concept that a policy's loss ratio at different points in its term can predict its final loss ratio, with predictability increasing as the policy matures.
• Medical Inflation/Trend: The rate at which healthcare costs are increasing over time.
• Leverage Trend: The amplified impact of underlying medical trend on stop-loss costs, as stop-loss covers only the portion of claims above a certain deductible.
• ACA (Affordable Care Act): Legislation that impacted healthcare coverage, including medical loss ratio (MLR) requirements and the removal of lifetime and annual maximums, contributing to changes in large claim frequency.

Tools/Resources Mentioned:

• Tokio Marine HCC 2025 Stop-Loss Report (linked in the video description)
• Paro (speaker's partner)