Stop-loss claims are increasing. Is ICHRA a better option? - Remodel Health

Many employers opt for a self-funded health insurance plan instead of traditional group coverage to save money. But all too often, these employers see their health benefits costs rise after a few catastrophic claims unexpectedly pop up. While stop-loss coverage can help, the steep renewal costs can leave employers and HR professionals looking for answers and alternatives.

As stop-loss claims rise in frequency and severity, many business owners wonder whether the risk of self-funding is still worth the reward. One alternative option is the individual coverage health reimbursement arrangement (ICHRA), which offers cost control and flexibility without the financial threat of large claims. But is it truly a better fit for your clients or company?

This article will explain why stop-loss insurance claims have increased in recent years. We’ll also show how the ICHRA can be the solution for employers looking to control costs while still offering a quality health benefit.

In this blog post, you’ll learn:

• Why stop-loss claims have been steadily increasing recently.
• How rising claims affect self-funded health plans and drive up stop-loss insurance premiums.
• How an ICHRA can offer a more stable, cost-controlled alternative to self-funded plans.

How does stop-loss insurance work with self-funded health plans?

Instead of paying a fixed premium to an insurer like traditional group plans, self-funded insurance allows businesses to design a policy that meets their and their employees’ unique needs. However, this added flexibility and less assistance from an insurer exposes them to more financial risk and administrative burden.

Instead of monthly premiums, self-insuring employers are responsible for paying a wide range of costs, such as:

• Administrative expenses
• Stop-loss insurance premiums
• Staff management fees
• Third-party administrator fees
• Software administration fees

A major expense of self-funded health insurance is employees’ medical claim payouts. Instead of insurance companies handling claims support, the employer is responsible for paying their staff’s claims out of pocket when they incur them. These costs can spike unexpectedly, so they need strong cash flow and reserves to cover high-cost months.

To offset this unpredictability, organizations can buy stop-loss insurance. This type of coverage works on a reimbursement basis, protecting them against catastrophic claims that exceed a set deductible. Like other types of insurance, stop-loss coverage comes with a monthly premium and potential rate increases during renewal time, especially after a large claim year.

Here’s how stop-loss insurance works: The company pays all its employees’ claim costs upfront. Then, they submit eligible claims to their stop-loss insurer to receive reimbursements for any amount over their plan’s deductible. This ensures the organization isn’t 100% on the hook for total losses. 

Why are stop-loss claims increasing?

Understanding why stop-loss claims are increasing is key to determining where to make changes to your or your client’s self-funded benefit plan to prolong its sustainability. 

Here are several reasons why stop-loss claims have risen:

1. Rising healthcare costs. The cost of treating chronic or severe health conditions — such as organ transplants, advanced cancer diagnoses, and obesity — has sharply increased due to specialized or long-term hospital care. These conditions can cost hundreds of thousands of dollars to remedy, pushing claims past stop-loss deductibles.
2. Specialty pharmaceutical treatment. Specialty prescription drugs can be effective at treating chronic conditions. However, this type of pharmacy coverage can be expensive, especially if a patient needs long-term medication for a critical illness. 
3. Delayed medical care. In many cases, individuals may defer routine and preventive care due to finances or other life priorities. As a result, medical situations that a provider may have easily managed earlier can become more advanced and costly to treat.
4. Medical inflation and provider costs. As of June 2024, healthcare inflation outpaces general inflation by 3.3%¹. Rising provider fees, increased costs for surgical procedures, and higher hospital rates all contribute to the overall increase in annual claims. General inflation, such as rising labor and supply costs, also increases healthcare expenses.
5. Lower deductible levels. Some employers choose a lower stop-loss deductible to reduce the potential for paying out large healthcare claims. While this may seem budget-friendly initially, carriers experience more claims and payouts, which can result in high premiums at the end of the policy year.
6. Increase in claim frequency per member. Higher utilization of medical services, greater access to care, or worsening health trends have also led to an increase in the number of claims per member. Employees undergoing multiple or ongoing high-cost medical treatments can strain a stop-loss policy.
7. Workforce demographic shifts. Another factor is an aging workforce, especially in companies with long-tenured employees. Older workers are more likely to have costly health events or pre-existing conditions that a stop-loss policy may need to cover.
8. Health industry tariffs. According to the American Hospital Association, upcoming federal government policy on imposing tariffs on medical supplies and prescription drugs imported from other countries may potentially limit supplies and inflate healthcare costs².  

Average stop-loss premium rate trends

Stop-loss premiums typically range from $50 to $150 per employee per month for specific coverage, with aggregate stop-loss coverage adding an extra $5 to $15 to the base cost. However, your total costs can skyrocket depending on the number of employees an organization has, their risk of high claims, and other factors.

Segal’s 2025 National Medical Stop-Loss Dataset found that stop-loss coverage premiums increased an average of 9.7% for groups with similar coverage levels as their 2024 policy. Those who increased specific or aggregate stop-loss deductibles, resulting in a reduced rate, experienced an average increase of 7.3%³.

According to the 2024 Aegis Risk Medical Stop Loss Premium Survey, the following were the annual stop-loss premium increases from 2022 to 2024⁴:

Additionally, Sun Life noted in their 2023 analysis report that the number of $1+ million claims rose 45% from 2019 to 2022⁵. According to BenefitsPRO, employers with self-funded policies were 13.5 times more likely to get a $2 million claim in 2024 compared to 2013⁶. 

Many of the reasons in the section above caused the increase in stop-loss premiums, causing insurance companies to offset their payouts with higher rates. For example, Sun Life reported that 71% of all stop-loss claims came from treatment for costly and severe medical conditions, like cardiovascular disease, leukemia, and sepsis.

How can the ICHRA support businesses as a cost-predictable alternative to traditional self-funded plans?

If you’re in a self-funded health plan or your clients offer one but are concerned about the risk of high claims and costly premiums, consider an ICHRA. An ICHRA is a flexible employee health benefit that employers can leverage as an alternative to traditional group coverage and self-funded plans. 

The ICHRA gives employers greater flexibility and financial control than other health benefits. Employers set a defined tax-free monthly allowance for each employee. Then, employees enroll in an individual health insurance plan on a public or private exchange and use their tax-free contributions to pay for the premium. 

Here are other ways the ICHRA helps employers keep costs predictable and manageable:

• The ICHRA has no monthly contribution limits. Organizations never pay more than the budget they set, giving them complete cost predictability.
• ICHRAs have no minimum participation rates. If some employees decline the benefit offering, there’s no financial penalty or negative impact to the plan. Plus, there are no rate hikes at the plan year’s end unless the employer chooses to raise their allowances.
• Employees can’t exceed their set monthly allowance. Additionally, if they don’t use their full allowance or leave the company, unspent ICHRA funds will return to the organization.
• ICHRA contributions are free from payroll taxes for employers and income-tax-free for employees.
• Employers can tailor ICHRA allowances and eligibility by employee classes, age, or family size to meet their company’s goals and budget.

The ICHRA also gives employees more freedom over their healthcare. Rather than enrolling in a rigid group plan, they can choose the individual policy that best fits their needs. As long as they have a qualified individual plan that meets minimum essential coverage (MEC) standards, they can participate in the ICHRA and save on medical care.

Here are some other advantages of the ICHRA:

• Applicable large employers (ALEs) can use an ICHRA to satisfy the ACA’s employer mandate as long as it’s compliant and meets the ACA’s affordability standards.
• If you or your clients have offices in several states or have remote employees, the ICHRA is the ideal health benefit. Instead of working with multiple insurers, employees can buy their own health insurance plan with their tax-free allowance, regardless of their location.
• All employers with at least one W-2 worker can offer an ICHRA, giving small businesses and enterprise organizations alike more options than group plans or traditional self-funded insurance.
• Unlike traditional employer-sponsored health benefits, employees can keep their individual policy when they leave your company. 

Conclusion

As stop-loss insurance claims continue to climb and self-funded plans become more challenging to navigate, employers are under pressure more than ever to find more sustainable, cost-controlled benefits strategies. Luckily, the ICHRA offers all the advantages of a self-funded plan without the financial uncertainty. 

At Remodel Health, our ICHRA+® administration solution makes it easy for benefits advisors and employers to set up and manage a personalized employee benefit plan. Plus, our expert support team is standing by to ensure your or your client’s employees get the coverage they need while stabilizing your budget. Contact us today to learn more about ICHRA+® and how we can help!

References

1. How does medical inflation compare to inflation in the rest of the economy? 
2. AHA Comments on Commerce Department Investigation of Pharmaceutical Imports 
3. Medical Stop‑Loss Premiums Increase Nearly 10% 
4. Aegis Medical Stop Loss Premium Survey 
5. 2023 High-cost claims and injectable drug trends analysis
6. Employers face 35% surge in $1M medical stop-loss claims