Reinsurance / Stop loss insurance

Snapshot: Reinsurance / Stop loss insurance

Reinsurance: Insurance for insurance companies to reduce the impact of unexpected high costs for a patient or group of patients.

Stop loss insurance: A product that provides protection against unpredictable costs for a patient above a specified threshold. It is purchased by employers who have decided to self-fund their employee health plans.

Risks addressed
✓ Actuarial

Issues to explore

  • Reinsurance/stop loss insurance coverage levels
  • Gene and cell therapy class inclusion
  • Coverage lasering policies
  • How reinsurers will treat any multi-year payment models

Snapshot: Milestone-based Contracts

A short-term performance-based agreement in which the payer makes an upfront payment for the entire negotiated price of the therapy. The developer is then contractually obligated to provide a rebate if specific agreed upon performance milestones/outcomes are not met.

Risks addressed
✓ Performance uncertainty


  • Therapy performance established over a brief period
  • Preference for rebates rather than prospective payments
  • Ability to align on elements of a performance contract
  • Infrastructure for patient tracking to assess outcomes

Issues to explore
Medicaid best price reporting criteria for value-based payments

With the advent of cell and gene therapies (CGTs) payers will want to consider whether their current actuarial risk management and risk pooling strategies will meet their future needs.

Reinsurance purchased by an insurance company or health management organization (HMO) allows the company to pass all or part of its risk to another insurance company. This risk can be transferred on a per-person basis, ‘specific excess’ or on a pooled basis, ‘aggregate excess’ or ‘quota share’. Self-funded employers purchase stop loss insurance to protect against large claims from any one person (specific stop loss) or higher-than-expected claims overall (aggregate stop loss). Reinsurers and stop loss carriers assuming this risk are often referred to as excess loss insurers.

Payers should review their excess loss insurance coverage levels and details. Excess loss insurers generally cover all or a portion of total claims for individuals that exceed some threshold (the deductible or attachment point) during the contract period. This coverage can mitigate actuarial risk with respect to CGTs. But patients who have or need a particular high-cost therapy present a ‘known’ exposure and may be excluded from (‘lasered’ out of) coverage.

Contracts between excess loss insurers and payers will vary depending on coverage levels, exclusions, premiums, and loss mitigation strategies. Combining any of the new financing models with excess loss insurance would require a review of their impact on coverage. A drawback for payment-over-time models is the excess loss insurer may only be responsible for the first or second payments, not further payments unless the excess insurance is specifically structured to assume this risk (which would increase the overall cost of the insurance). For CGTs, the association of payment with long-term therapy performance is one potential cost mitigation strategy. However, traditional contracts are generally written on an annual basis and do not allow for matching costs with benefits over time.

Payers and employers should understand the risk that is transferred to excess loss insurers, including coverage for the current FDA approved CGTs as well as the treatment of forthcoming therapies. They should review terms of coverage as they may vary for amount paid, treatment site requirement terms, etc. Even though the payers are transferring the actuarial risk to excess loss insurers, they should understand the importance of identifying this risk early and getting their excess loss insurer involved as early as possible as any cost incurred by the insurer for these therapies will be incorporated into the payer’s experience and charged back to the payer over time. The implications of any multi-year payment model should be explored with excess loss insurers. Excess loss carriers’ resources and loss mitigation expertise with CGTs should also be a contracting consideration.

Additional information may be found in the FoCUS research brief Stop-Loss Insurance or Reinsurance for Multiyear Contracts and the FoCUS white paper The Role of Stop-Loss Insurance and Reinsurance in Managing Performance-based Agreements.