AH055 - Pharmacy Benefits 101: Stop-Loss Insurance, with Mike Miele, FSA, MAAA
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Transcript
Lightly edited for clarity.
[00:27] Justin Venneri: Hello and thank you for listening to this episode of the Astonishing Healthcare podcast. This is Justin Venneri, your host and Director of Communications at Capital Rx. And joining me in the studio today is Michael Miele. Mike joined us back in August of 2024 for episode 31, dissecting pharmacy cost drivers and the value of PMPM with Kristin Begley, PharmD, our Chief Commercial Officer, and that was a fun discussion. So, I'm excited for this Pharmacy Benefits 101 chat. We're going to be talking about stop-loss.
Mike's our go-to actuary in-house and expert on all things in and around this. So, Mike, thanks for joining me in the studio.
[01:01] Mike Miele, FSA, MAAA: Good morning. It's great to be here.
[01:03] Justin Venneri: So stop-loss, it's been in the news recently in a not-so-great way because premiums are rising -- and I'll link that in the show notes, the article I'm referencing was a BenefitsPRO article.
Can you start off like high level for us? When you talk to plan sponsors, do you get questions about stop-loss and then how do you explain what it is?
[01:21] Mike Miele, FSA, MAAA: We do. I just want to clarify what we're talking about. If we're talking about medical and pharmacy stop-loss, yes, you're right that premiums are increasing, and it's because large claims are increasing. The interesting development in my world is the renewed interest in pharmacy-only stop-loss.
[01:39] Justin Venneri: That's really interesting because I mean pharmacy costs have been rising for years, right? And with more expensive drugs coming to market every year, it seems like that protection is necessary. Is it that simple? Like is stop-loss just insurance against high cost/super high-cost claims?
[01:54] Mike Miele, FSA, MAAA: It is. It's just there hasn't been much pharmacy-only stop-loss product on the market. And just to back up, the traditional stop-loss that almost every self-funded employer has is a medical and pharmacy combination. And with respect to pharmacy, I don't know that pharmacy claims drive a lot of the cost increases on traditional medical and pharmacy stop-loss, but it's a contributing factor for sure.
There are patients that can consume a million dollars of drugs in one year. So that would clearly be a potential stop-loss claim. But what a lot of self-funded employers are asking is a more budgetable pharmacy experience. Really the only way to do that properly is to combine a self-funded pharmacy arrangement with a pharmacy-only stop-loss. And while the market likes the idea, they tend to cringe at an additional expense on the plan.
So, stop-loss is about 10% of any self-funded program. So now I'm talking about medical and pharmacy, again; I'm sorry to keep switching back and forth.
[03:01] Justin Venneri: No, it's helpful that you're clarifying. I learn something new every day doing this, and I was excited to have this discussion because I think people will find it interesting.
[03:09] Mike Miele, FSA, MAAA: It is interesting. It's also, I would say, the second biggest pain point in a self-funded program, the first being pharmacy -- how to get the best deal out of your PBM. But we've already covered that in other sessions. So this is more about what would make this all work better for self funded employers.
And my big idea is, just like we carved out pharmacy from the medical program years and years ago, why couldn't we do the same thing with stop-loss? Why couldn't there be a medical stop-loss policy and also a pharmacy stop-loss policy?
Generally the challenge is that -- let's just say that current stop-loss premium is 10% of the expected program costs. And on the pharmacy side that's very easy to structure a pharmacy-only stop-loss policy. So let's say you're a self-funded employer and your budget is currently $1 million, but you want to really lock that number in and say, okay, that is my budget for next year.
What we're developing at Capital Rx is a pharmacy-only stop-loss program where it adds about 10% to the budget. So instead of paying $1 million, and, maybe, you lock in at $1.1 million, you're protected up to $2.1 million generally through stop-loss.
And everybody says, oh, that sounds pretty good. Budgeting certainty always has a value. Now the trick, and what we're trying to do now, is to get the medical stop-loss community to say, okay, you're carving out pharmacy from stop-loss. I'm going to give you a discount on the stop-loss for just medical. And that can be quite challenging. When I talk to brokers around the country, they're very receptive to this concept. But getting the markets to cooperate is a whole other story.
Now we have identified a few carriers that are willing to do this type of approach with us. And I'm not going to name names yet, but we are actively in this market. So there is a tremendous amount of interest in, again, talking about self-funded employers in the stop-loss market today. So I'm talking about groups that are probably under 10,000 members. Because once you get to 10,000 members, often stop-loss policies are not purchased. The employer says I'm big enough, my actuary says I don't need it. Or maybe they reinsure at a much, much higher level than a normal stop-loss policy. But nonetheless, we're talking about the groups under 10,000 lives.
[05:35] Justin Venneri: Okay. One of the things that the article suggested, or perhaps I read somewhere else because this has been in the news, is for certain types of plans that are self-insured, because of the increase in the premium for stop-loss, they might want to look at going fully insured.
Could you just talk about the nuance there between like everything you're saying for self-insured employers under 10,000 members versus like a fully insured model?
Related News & Content:
- Sun Life sees stop-loss problems spiking: Will it force employers to buy fully insured coverage? (BenefitsPro)
- AH031 - Dissecting Pharmacy Cost Drivers and the Value of PMPM, with Kristin Begley, PharmD, and Mike Miele, FSA, MAAA
- Capital Rx Unveils Healthcare's First Unified Pharmacy and Medical Claims Processing Platform
[06:01] Mike Miele, FSA, MAAA: Sure. Well, let's take this discussion to say under 1,000 members, or you know, around 500 employees. I would say that the typical insurance consultant broker is doing that calculus every year with their customers. They're saying, should I stay self-funded? Should I at least explore fully insured? And there are going to be times, and we've actually lost customers, smaller ones that have said, you know, we love you guys, but we really can't be self-funded. We need to go back and be fully insured. And it's very unusual for a self-funded employer to go back to being fully insured. But it does happen.
And I would encourage you, if you're listening and you're an employer in that size, you should be asking your broker or consultant to do that calculus for you every year, just like they bid stop-loss every year. So that would be yet another calculation.
[06:49] Justin Venneri: That makes sense. And then I'm curious about the drivers on the pharmacy side. Is it cell and gene therapies, cancer and cardiovascular, diabetes, chronic conditions? Like, can you talk a little bit about the nuances within the pharmacy spend segment and like what's driving them?
[07:03] Mike Miele, FSA, MAAA: Sure, I could even make it simpler for you. So, in our book of business - ‘24 versus ‘23 -- we don't have our final numbers out, but it's looking like overall trend for our book of business is in the 7% range.
But what's interesting is if you just divide the groups into two buckets -- the first group is you don't cover GLP1-s for weight loss. You cover it for diabetes, but you don't cover it for weight loss. Those groups are trending at about 2%. When you then cover weight loss - and it's hard to sort of cover weight loss, you either cover it or you don't -- so if you cover it, what we're experiencing in our own book trends north of 15%. Now, that's not really a stop-loss question. These claims are relatively low. So, I don't think anybody is hitting a specific stop-loss limit because they're on Ozempic or Wegovy, but it doesn't help either. So when groups cover weight loss, GLP-1s tend to be 20 to 30% of the budget.
Now imagine this. In 2022, there were no GLP-1s. So, this is a whole new category that just sort of came out of nowhere. And it's probably one of the biggest categories in pharmacy right now. But because the claims are relatively low -- and I say relatively, they're only $1,000 a month -- that doesn't drive stop-loss claims. A drug like Strensiq, which hopefully, if you're listening, you don't have anybody on that drug, but that's a $50,000 a month drug. And those drugs are few and far between, but they do happen. And that can trigger a stop-loss claim.
So what I like about the separation of pharmacy and medical is it gives the employer one more negotiating opportunity to get a better deal on each piece. Now, what I find really funny about this is when we talk to the medical guys, they go, we don't like this. Well, hold on. What don't you like? You're taking this risk today. So when you write a medical and pharmacy stop-loss policy, you're taking all of this pharmacy risk now, so what's the difference?
And I know the answer. The answer is, well, maybe I'll get lucky. Maybe a group will have a lot of pharmacy claims, but not a lot of medical or vice versa. But when you separate them, you could get hit without an offset.
So my answer to that is, well, why don't you write both of them? Just divide them. So again, you're taking this risk today. So if you were charging $1 million for stop-loss, charge $750,000 for the medical and $250,000 for the pharmacy and you're done. And then let others bid on those pieces. Because at least in our business, the pharmacy business, we can be very competitive as a stop-loss market because we know pharmacy. We know what's coming down the pipeline. We have really good trend information. So we can look at a group and their plan and really assess that risk separately.
Which at the end of the day, isn't that what a self-funded employer is trying to do? They're trying to manage their risk? Well, this is just one more tool to do that.
[09:59] Justin Venneri: Got it. And you got right at my question, like you're saying you hope you don't have that rare condition. The example you gave is hypophosphatasia, which I can't believe I almost said correctly or smoothly. But that's like a rare inherited genetic. When those things pop up, the cost --
[10:16] Mike Miele, FSA, MAAA: These are what I would call the one-in-a-million situations. So, most groups never have a claim like this. But hemophilia is another example of that catastrophic event in pharmacy. But it is very few and far between. You mentioned earlier about gene therapy. That is not a PBM pharmacy risk. That is a medical side of the house, because PBMs don't cover those types of drugs typically.
[10:39] Justin Venneri: Okay. And then the cancer and cardiovascular, a lot of those medicines, does it just depend on the type of cancer a member has?
[10:47] Mike Miele, FSA, MAAA: I think for cardiovascular, most of those drugs are in the pharmacy program. Cancer is a mixed bag - some are in the pharmacy, some are in the medical.
[10:55] Justin Venneri: Okay. And then I don't want to pick on anyone in particular, but because it was a public earnings call and you noticed it, I wanted to ask you about Cigna's earnings call and how they sort of quote unquote missed on the forecasts or modeling or at least that was my takeaway. And I think that'll come back around for them. But are there implications there for others, you think?
[11:14] Mike Miele, FSA, MAAA: Well this is not a good time to be in the risk-taking business. Medical claims have never been higher than they are now. And again, I'm dating myself, but when we first developed these actuarial stop-loss models, we said, well, the most a claim can ever be in one year is $2 million. And that wasn't like 50 years ago; that was maybe 10 years ago. And not a day goes by that I don't hear about a $3 million, or $4 million, or $5 million claim. That was a mathematical impossibility 10 years ago.
So, think about this from the poor, helpless stop-loss carriers' perspective. I'm being a wise guy. They have a real risk here. And so because those risks are increasing, so are the premiums. There's a lot of things employers can do to limit that risk, the way they design their programs, but they're also a little bit hamstrung. You can't have lifetime maximums anymore per Obamacare.
And the way those risks get managed better is the idea we have, which is just separating the two things and letting people really focus on the things that they know better. And then also improving medical management and claims negotiation capabilities. Because show me a claim that's $4 million, I'll show you a claim that has some fat in it, maybe some billings that don't make sense. That's a lot of claims for one person.
[12:35] Justin Venneri: It does seem like there's probably some quote unquote spread in there, right?
[12:39] Mike Miele, FSA, MAAA: It's not spread, it's that, I think what happens is anybody who's incurring claims like that, something went wrong. It was a transplant that went bad, it was a preemie baby, something happened. And oftentimes it's such a scramble to treat that person that the claims that get billed through the system are often inaccurate simply by just the very nature of how the care was delivered.
[13:04] Justin Venneri: That makes sense. And that was me being a little bit of a wise guy on the spread comment. So, I'm trying to match you. And you did kind of get at my question there of ways to mitigate the risk or deal with it.
So Mike, thanks for sharing your thoughts and just your experience with this. It is fascinating the way potential costs the plan can incur have skyrocketed relative to what was normal forecasts or expectations 10, 12, 20 years ago.
Out of curiosity, I'll just jump to the last question because I know you're busy and on the road today. What's the most astonishing or surprising thing that you've seen related to our discussion and stop-loss that you can safely share, of course?
[13:41] Mike Miele, FSA, MAAA: I think I already said that. I said that I would have never dreamed of a $4 million claim. I am astonished by that because I know how much a bed day costs. I know how much an ICU day costs. I mean that is just almost impossible to imagine.
[13:58] Justin Venneri: What do you do when you see that? Or what should the plan sponsor or -- what do you do? Do you just have to pick it apart and see what all of the codes are that are driving that?
[14:08] Mike Miele, FSA, MAAA: You do, but I think the most important thing that a plan sponsor can do is to be very -- again you're if you are a self-funded employer, so I'm talking to the self-funded community out there -- make no mistake, you are the insurance company. Yeah, stop-loss backs you up, but you are the risk taker.
So, what astonishes me, I guess, is how many times does an employer not find out about these million dollar claims when they're still percolating? And part of it is because when big claims come in they tend to get pended and so you don't see them in the claims file. They're just hanging out there.
So, what I would encourage self-funded employers to do is to ask their brokers and consultants how to do a better surveillance on emerging claims. And I think that is the biggest insight I could share today. I wish I had more solutions to provide the audience. You know, my big idea is splitting up medical and pharmacy on the stop-loss side. And there need to be more markets in the pharmacy-only space.
We're doing it and there are a handful of other PBMs and carriers that are offering this, but it's few and far between. But I'd like to develop this market where I think it could be really valuable for a self-funded employer.
[15:18] Justin Venneri: That makes sense. And then I think hopefully Judi Health™ addresses some of this by being able to pull the claims together so you can see everything side by side. And maybe there are fewer delays and better insights can be gleaned more quickly. And that would be helpful too, I would think.
[15:31] Mike Miele, FSA, MAAA: Yep. That's probably a topic for another podcast though about how to mitigate high-cost claimants, maybe using an integrated system like Judi Health.
[15:41] Justin Venneri: We'll get there. We've got a lot of ground to cover this year. Mike, thank you so much for joining me today. If somebody wanted to learn more about the solution, just get in touch with you on LinkedIn or is there a link I should point them to?
[15:51] Mike Miele, FSA, MAAA: They're happy to do that. Or you could just email me directly. I am the SVP of Insured Products. This is what I do every day, so, happy to talk about it.
[15:58] Justin Venneri: All right, thank you.
[15:59] Mike Miele, FSA, MAAA: Thanks. Take care.
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