Recently, I came across an old email from a few years ago. The correspondence highlighted that an administrative services only (ASO) plan we were completing plan analytics work for had a $25,000 catastrophic stop-loss threshold for its drug plan which carried an annual stop-loss premium of 1.2%. It was a serendipitous troll through old emails because in my inbox was an email from a plan advisor highlighting the premiums a mutual client was facing as of this coming October for stop-loss at a level of $10,000 had risen to nearly 16%. And I received another email today highlighting premiums increasing to 20% for another ASO plan at renewal.
It’s amazing how quickly things evolve in the world of drug plans. While the numbers above are not exactly an apples-to-apples comparison, it’s clear that the cost of purchasing stop-loss insurance as a risk management strategy for very expensive specialty drug therapies has skyrocketed in recent years, in lockstep with the rapid increase in the use of these innovative therapies. This isn’t a trend that is likely to be interrupted at any point in the near future.
The questions on the mind of this plan sponsor are: Can stop-loss be optimized? How can an ASO plan meaningfully assess what kind of stop-loss coverage they should be seeking? What attachment point makes the greatest sense?
The good news is that plans can absolutely quantify their risk, and therefore make better decisions. The answers exist within the current claiming experience.
For an ASO plan, there are three key pieces to solving the puzzle and understanding your future exposure to specialty drugs:
- proportion of current specialty claims allocated to chronic disease;
- conversion risk of existing claimants with “traditional” treatment regimens for a given disease to regimens based on newer specialty drugs; and
- risk of additional specialty claimants and claims emerging that should have otherwise been seen already in the plan experience
Let’s consider the case of an ASO plan sponsor with employees scattered across numerous provinces. The plan and its members collectively spend close to $3 million annually within the drug plan benefit. In fact, not only has plan spending been in decline in recent years, but the specialty drug spending has leveled off. So from the highest-level lens, everything within the plan looks to be operating well.
If this plan is concerned about where to look at attaching stop-loss moving forward, and with what kind of coverage, how does it balance the cost vs. benefit equation?
- The first consideration is the current profile of its specialty drug spending: 93% of all plan spending within this category is for chronic specialty therapies. What does this mean? Is that good? Is that bad? How does that impact the plan moving forward? It’s important to understand how many of these claims can be expected to reoccur to set a baseline, but the other questions are answered with a deeper probe.
- With a total specialty drug spend of $500,000 per year coming through the plan, this plan sponsor needs to next understand its own unique risk of existing “traditional” treatment regimens converting over to specialty claims moving forward. Based on the demographic and disease state profile of the group, it was determined that the plan risked seeing the specialty spend increase by just more than $30,100 or 6% per year as claimants on traditional therapies look to transition to specialty. That was a manageable number all things considered.
- The more significant risk for this ASO plan, however, is with an increase in new specialty claims moving forward because of a current undersaturation of specialty drug utilization. It was calculated that the plan faces the risk of an additional $144,000 per year in specialty spending, should its utilization match what would be expected to be seen within a population with its existing demographic and disease state profile.
- Finally, it was calculated that the risk of claims for new hepatitis C therapies is low given that the whole universe of possible hepatitis C claimants in their population is only eight claimants. Given that not all claimants would even know they have the disease, that not all of these patients will seek treatment, and that therapy is expected to last no more than three months in total, its exposure within this therapeutic category is quite minimal. The bigger concern for this plan is clearly the potential for growth in other areas of specialty utilization.
It will be interesting to see where stop-loss premiums move in the years ahead, and how ASO plans will adapt to those financial pressures. I wonder how much time insurance carriers and claims processors are currently spending assessing their own blocks of business to quantify their own risks moving forward. The good news is that it’s likely only a matter of time before some of the more sophisticated vendors start using detailed specialty risk modeling to understand their own situation, and as a result, we may start to see substantial differentiation in ASO stop-loss rates between vendors.
In the meantime, for ASO plan sponsors, the opportunity exists to more fully evaluate and quantify their own risks in this area to assist in appropriate planning.