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Let’s be clear: the stop-loss insurance market is tightening, and if you’re not adjusting your strategy, you’re going to feel it. Here’s why increasing your deductible could be the solution to navigate these challenges and maintain a healthier bottom line.
The Tightening Stop-Loss Market
The reality is that the stop-loss insurance market is undergoing significant changes.Voya Financial is already signaling that it’s prepared to lose customers in 2025 to drive prices back to profitability. They warned the public in August 2024 that claims costs were rising, and now, their CFO is confirming that stop-loss premiums for January 2025 renewals will see rate hikes twice as high as those from January 2024.
Sun Life Financial is in the same boat. A surge in high-cost claims—driven by advanced cancer cases, pricey cancer drugs, and more premature births—hit them hard in the fourth quarter of 2024. Dan Fishbein, president of Sun Life US, responded by raising premiums 14% and tightening coverage for plans with big claims.
In short, if you’re sticking with a low specific deductible, you’re not prepared for what’s coming. The market is shifting, costs are rising, and you need to rethink how you’re managing your health plan. It’s not about whether you want to change; it’s whether you can afford not to.
Let’s not beat around the bush—if you’re sticking with a low specific deductible on your self-funded plan, you’re shooting yourself in the foot. Too many businesses think a lower deductible is the “safe” choice, but all it really does is create higher fixed costs and more headaches. If you want to make smart, strategic decisions for your company, it’s time to rethink your approach.
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The Problem With Low Deductibles: High Fixed Costs
Here’s the hard truth: accepting a deductible that’s too low means you’re locking in higher fixed costs with less room to manage your variable costs. Ideally, your fixed costs should be 20% or less of your total plan expenses. If you’re above that threshold, you’re already overspending. A low specific deductible may feel like protection, but all it’s doing is increasing your premiums and locking you into a cycle of unnecessary costs.
More Claims, More Problems: The Impact of Low Deductibles
A low specific deductible also means more frequent stop-loss claims. The more claims you have exceeding that deductible, the worse your plan will look—even if the performance of your group isn’t the problem. Ideally, you want 2-3 claims to exceed your deductible in a year. If you’re seeing more than that, your deductible is too low, and it’s slowing down your operations. You end up spending more time tracking advanced funding and dealing with aggregate accommodations than managing your business.
Plus, a high frequency of stop-loss claims puts pressure on your aggregate, leading to bigger increases in your aggregate premiums and factors at renewal. It’s a double whammy—you’re spending more on stop-loss claims and driving up costs for the future.
It's About Control, Not Risk
Setting the appropriate deductible protects you from unnecessary costs and keeps your aggregate in check. You apply the full deductible only to claims that actually need it, and your plan runs more efficiently. It’s not about avoiding claims altogether—it’s about handling them the right way.
Here’s where most businesses get it wrong: raising your deductible isn’t about taking on more risk, it’s about gaining more control.
How Higher Deductibles Enable Better Cost Containment
Another thing most people don’t realize is that the right deductible also encourages better cost containment. When the employer has enough “skin in the game,” there’s more motivation to participate in programs that improve employee health and control costs throughout the policy year. You stop reacting to claims and start proactively managing them. That means fewer surprises at renewal and a healthier workforce overall.
FAQs: Higher Deductibles and Self-Funding
Raising your deductible helps control fixed costs and reduces premium increases. It lowers the frequency of stop-loss claims, making your plan more efficient and cost-effective, especially in a tightening market.
A higher deductible encourages proactive health management, leading to fewer claims and lower costs. It helps create a healthier workforce and reduces surprises at renewal, resulting in long-term savings.
This can increase fixed costs and the frequency of stop-loss claims, driving up premiums. It can also lock your business into rising costs and limit your ability to manage expenses effectively.
The Bottom Line
Here’s the truth: keeping your specific deductible too low is costing you money—both now and in the long run. You’re locking yourself into higher fixed costs, dealing with more claims, and driving up premiums for the future. The smart move? Raise your deductible. Get control of your costs, improve your plan’s performance, and set yourself up for long-term success.
It’s time to stop playing defense and start making smarter decisions contact us.
ABOUT THE AUTHOR
Bruce Dunham
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