Experience-Based Rates: How Claims History Shapes Stop-Loss Pricing

# Experience-Based Rates: How Claims History Shapes Stop-Loss Pricing

While manual rates provide a population-level baseline, experience-based rates reflect how your group has actually performed. This real-world claims data is the second pillar of stop-loss underwriting.

## What Carriers Analyze

When reviewing a group's experience, underwriters examine several key data points:

### Large Claims
- Identification of high-cost individuals
- Specific diagnoses (cancer, transplants, NICU stays)
- Ongoing treatment protocols and expected duration
- Potential for claim continuation or escalation

### Monthly Paid Claims
- Total claims paid over time
- Medical vs. pharmacy breakdown
- Seasonality and payment patterns
- Trend over multiple years

### Utilization Patterns
- Frequency of doctor visits
- Prescription utilization rates
- Hospitalization frequency and length of stay
- Emergency room usage

### High-Cost Drugs and Treatments
- Specialty medication utilization
- Biologics and biosimilars
- Emerging therapies like gene treatments
- GLP-1 drugs for diabetes/weight management

## Trending Experience Forward

Raw historical claims data isn't used directly—it's **trended forward** to the rating period to account for expected cost increases. This trending process involves:

- Applying medical trend factors (typically 7-9% annually)
- Separate pharmacy trend assumptions (often higher than medical)
- Leveraged trend adjustments for stop-loss layers
- Specialty pharmacy-specific modeling

Specialty pharmacy trends—including GLP-1 drugs, oncology agents, and gene therapies—receive specific modeling attention in many underwriting manuals due to their outsized impact on large claims.

## Credibility: The Key Variable

Not all experience is weighted equally. The **credibility** of a group's experience depends on:

| Factor | Impact on Credibility |
|--------|----------------------|
| **Group Size** | Larger groups = more reliable data |
| **Data Duration** | Multiple years improve predictability |
| **Consistency** | Stable patterns more credible than volatility |

A 500-life group with 3 years of stable claims gets far more weight on experience than a 50-life group with 1 year of volatile data.

## When Experience Suggests Lower Rates

If a group has run well historically, its experience might suggest a lower rate. For example:

- Manual rate: **$100 PEPM**
- Experience rate: **$60 PEPM**

However, the final quote will blend these based on credibility—and carriers have minimum thresholds (typically 50-70% of manual) below which they won't quote regardless of favorable experience.

*This article is part of our series on stop-loss underwriting. For a comprehensive overview, see our whitepaper: [Stop Loss Underwriting: A Deep Dive](/resources/whitepapers/stop-loss-underwriting-deep-dive).*