The Challenges of Stop-Loss Insurance for Gene Therapies

1. What is stop-loss and reinsurance?

Stop-loss insurance is a type of reinsurance that protects self-insured employers from high-cost medical claims that exceed a predetermined threshold. For medium-sized employers, this threshold is typically set at $100,000 per person per year. For example, if an employee or their dependents incur total medical expenses of $250,000, the stop-loss carrier would cover the amount above the $100,000 threshold, which in this case would be $150,000. This helps employers avoid the financial risk associated with catastrophic claims. Companies like Swiss Re and United offer medical stop-loss insurance directly to employers.

2. Why does it matter for gene therapy coverage?

Given that the average cost of gene therapy exceeds $3 million per treatment—far above the typical stop-loss attachment point for most employers—the effectiveness of stop-loss coverage becomes crucial. This directly affects whether self-insured employers can ensure patients' access to these expensive treatments.

3. Why Doesn't Stop-loss Insurance Always Work?

1. Stop-loss plans typically laser out diagnosed patients

   A laser is a separate, individual-specific benefit exclusion that applies to a single identified person within an employer’s insurance plan. For example, in the context of gene therapy coverage, if an employer has a $100,000 individual stop-loss (ISL) level and a diagnosed hemophilia B patient is lasered out, the group is responsible for up to $100,000 in medical expenses for every employee except the hemophilia B patient. For this individual, the employer is now responsible for all medical spending. This means that if the hemophilia B patient chooses to receive gene therapy treatment, the employer could be exposed to a $3-4 million gene therapy claim without protection.

2. Stop-loss functions as car insurance for smaller self-insured employers

   For smaller self-insured employers, stop-loss insurance operates similarly to car insurance, where premiums increase with total medical spending. For example, consider an employer with 500 employees and an average annual medical spending of $4.2 million.

   If one employee requires a $4.5 million gene therapy treatment like Lenmeldy in a given year, the employer’s total medical spending would jump from $4.2 million to $8.7 million. Despite the fact that gene therapy is a one-time treatment and the patient will not require it again, the stop-loss premium will double the following year, leading to significant increases to the employer’s benefit spending over time. This illustrates the limitations of the current healthcare system in addressing the costs of one-time curative treatments.

3. Cost

   Additionally, for smaller self-insured employers, stop-loss premiums are a significant portion of their total benefit spend, and many are experiencing sharp year-over-year increases. In 2022, employer spending on stop-loss insurance reached $31.6 billion, marking a 13% increase since 2017. Due to a number of regulatory and structural reasons, this number is not expected to come down anytime soon.

4. Conclusion

The limitations of stop-loss insurance often leave employers with inadequate gene therapy coverage. Additionally, the high cost nature of these treatments contribute to rising long-term premiums.

Without proper financial solutions in place, more and more smaller self-insured employers are left with no choice but to drop gene therapy coverage entirely.

Revisit our previous series: Gene Therapy & Self-Insured Employers