The Dynamics of High-Cost Claims in Health Care

The health care claims landscape has changed significantly in recent years. The biggest takeaway? High-cost claims continue to rise. We see three key factors influencing this trend:

1.   Increases in claim frequency and severity
2.   Growth in pharmacy spending
3.   Unpredictability of initial diagnoses

Increases in Claim Frequency and Severity

As a Stop Loss carrier, we have experienced significant growth in the number of claims occurring – and increasing costs associated with those claims. In general, the overall rising cost of health care plays a central role, making it imperative for insurers to closely monitor and manage claims to better mitigate financial risks.

We’re seeing advancements in medical and pharmaceutical treatment options driving costs upward, and complications from comorbid conditions are a major contributing factor too. As we continue to process larger claims more frequently, our operational metrics and reserves face strain that must be acutely addressed. This isn’t just about managing individual high-cost claims; it’s about determining the best ways to address the overall upward shift in claims distribution.

Growth in Pharmacy Spending

While new gene and cell therapies get a lot of attention for their exorbitant price tags, it's important to recognize that the increase in pharmacy spending extends beyond these innovative treatments. There’s also a growing pipeline of high-cost specialty drugs and therapies influencing the overall spend on pharmaceuticals, something that underscores the need for effective cost management strategies to help contain expenses and ensure sustainable health care coverage.

Unpredictability of Initial Diagnoses

Another critical aspect to consider when addressing high-cost claims is the unpredictability of additional diagnoses that can arise from an underlying condition.

Consider a claimant who is treated for a systemic inflammatory disorder that would, on average, result in a $90,000 claim. That same claimant is then diagnosed with a rare genetic condition and must undergo an array of incredibly expensive treatments, including specialty medication, hospital stays, and an allogenic stem cell transplant, all of which results in somewhere between $1 million and $5 million in costs (depending on the specific treatments/charges involved). A case very similar to this scenario escalated to nearly $20 million in claims within a 12-month policy with additional factors contributing. This is not something we would necessarily anticipate – such a rare diagnosis that is determined after initial treatment for another disease – but we paid the claim.

It’s this sort of unpredictability that poses a significant challenge for insurers though, complicating the process of projecting and managing claim costs. And it highlights the importance of comprehensive care management and proactive monitoring to address potential complications early and effectively. It also clearly demonstrates the importance of having the right Stop Loss protection in place if you’re a self-funded employer.

Being Proactive

To navigate challenges, HM Insurance Group has focused on several key operational tactics:

Enhancing Data Analytics for deeper insight into claim patterns, identification of high-risk groups, and improved predictive modeling that allows for more accurate risk assessment and strategic pricing adjustments.
Optimizing Processes that streamline activities to improve efficiency and reduce operational costs, including automation of repetitive tasks and adoption of new technologies to manage the increasing volume of claims.
Developing Strategic Partnerships with industry stakeholders to access better data, explore cost-containment strategies, and gain a deeper understanding of emerging trends.

When you take time to understand the factors driving claim trends, you can better navigate challenges and develop strategies to manage costs effectively. As the industry evolves, staying informed and proactive helps to ensure sustainable and equitable health care.