Through the Affordable Care Act, many measures are being implemented that are expected to have a positive impact on bending the healthcare cost curve downward in the long term. However, the same act removed annual and lifetime limits for medical insurance claims. As a result, the maximum potential loss from a single individual is a new frontier of risk, with new heights being reached each year. This is both a frequency and severity issue.
To illustrate the frequency impact, consider a recent report by Sun Life Financial for its stop-loss business: the number of claims of USD 1 million and above increased by 1,000 percent from 2010 to 2013. While there were only two claims in 2010 that number rose to 22 claims in 2013. With respect to severity, the limit for any one person in any year was generally USD 2 million prior to 2010. Last year saw multiple claims of more than USD 20 million in charges and dozens of more than USD 5 million.
With the potential for medical solution providers to earn millions of dollars per patient each year combined with tremendous strides in biotechnology, previously unimagined and uneconomic therapies are becoming not only possible but also potentially pragmatic.