2026 MARKET TRENDS

Stop Loss & Alternative Funding

Key Takeaways

Carrier underwriting has tightened materially, resulting in higher lasers, stricter terms and above-average renewal increases, particularly for employers with high-cost claim exposure
Leveraged trend is compounding stop loss premium increases even for well-performing plans, making volatility structural rather than temporary
Smaller employers are increasingly turning to captives and alternative health plan financing arrangements to regain control, transparency and multi-year stability

The stop loss market has entered a period of sustained disruption driven by record-setting high-cost claims, rapid specialty drug inflation and increasing claim severity.

Overview

The stop loss market has entered a period of sustained disruption driven by record-setting high-cost claims, rapid specialty drug inflation and increasing claim severity. After several years of aggressive carrier pricing following the pandemic, underwriting discipline has tightened materially, with higher lasers, stricter coverage terms and above-average renewal increases becoming more common. These dynamics are affecting both fully insured and self-funded employers, with smaller organizations facing disproportionate risk as coverage protections narrow.

Looking ahead to 2026, employers are responding by rethinking how healthcare risk is financed and managed. Growth in captives and hybrid risk models, such as combining traditional stop loss with a captive layer for shared risk, reflect a broader shift toward transparency, control and multi-year stability. At the same time, pharmacy spend is also posing a significant cost concern for carriers. Several areas of pharmacy spend can drive high cost claimants including blockbuster drugs, including cell and gene therapies, which can exceed $1 million in cost, though these drugs are meant to be curative and can come with warranties.

Catastrophic Claims Driving Stop Loss Volatility

Specialty pharmacy represents ~55% of total pharmacy spend, while serving fewer than 2% of members1
Gene and cell therapies routinely exceed $1 million–$3 million per treatment, with oncology costs rising 10–15% annually1
Average leveraged trend now ranges from 16–22% annually, even for well-performing plans

Rising claim severity and frequency, rather than utilization alone, is now the dominant force shaping stop loss volatility. High-cost claimants driven by oncology and specialty pharmacy are materially changing the underlying risk within an employer-sponsored medical plan with large claimants and stop loss playing a larger role in the overall plan costs.

As underlying medical and pharmacy trend increases, stop loss volatility compounds through leveraged trend. When employers maintain the same specific deductible year over year, carriers absorb a growing share of higher-cost claims, magnifying premium increases regardless of whether the overall claim experience appears “good.”

Stop loss volatility is being driven by sustained increases in catastrophic claim severity, amplified by leveraged trend. Employers should evaluate claim drivers and deductible strategy together, recognizing that stable deductibles no longer insulate plans from volatility.

Employers Are Increasingly Turning to Other Financing Models

Captive adoption among mid-market employers has surged in recent years, as companies seek greater control and cost stability amid rising premiums and stricter underwriting requirements
Alternative health plan financing models can provide multi-year rate smoothing, avoiding sharp premium increases from one year to the next

In response to heightened stop loss volatility and reduced predictability, employers are rethinking how they finance healthcare risk. Captives and alternative financing arrangements are increasingly viewed as strategic tools that can enable employers to regain control over volatility, transparency and long-term cost trajectory. These models help enable employers to access shared risk pools, customized plan design and integrated medical and pharmacy strategies that may not be feasible in fully insured health plan financing arrangements.

Captives reflect a strategic shift in how employers finance health plan cost risk, not just an alternative stop loss placement. Employers should assess claim volatility, risk tolerance and governance readiness before pursuing these models.

Lasers, Rate Caps and Shrinking Market Leverage

Million-dollar claims rose 29% year-over-year and 61% over the past four years2
Most stop loss carriers name cancer, premature delivery and heart conditions as the top three cost drivers2
Some employers without rate caps have experienced stop loss increases exceeding 75%

Increasing claim frequency and severity are translating directly into more aggressive renewal outcomes. Employers with deteriorating experience are more likely to face lasers, limited carrier participation or the loss of rate cap protections altogether, particularly smaller employers without no-new-laser provisions. As carriers become more selective, fewer are willing to quote on higher-risk groups, reducing competitive leverage and limiting employers’ ability to manage increases.

Rising claim severity is reducing market leverage at renewal, especially for smaller employers. Employers should actively monitor high-dollar claims, plan early for renewal scenarios that may require funding or plan design changes and consider third-party services to assist.

Contract Structure Now Matters as Much as Price

78.6% of employers have a 24/12 or PAID contract basis3
69% have a no-new lasers provision; only 66% of those have a rate cap3

In a volatile stop loss environment, contract terms and conditions materially affect employer liability. Coverage gaps tied to contract basis, run-out provisions or lack of plan mirroring can expose employers to claims they assumed were insured. Similarly, having a no-new-lasers provision without a rate cap — or vice versa — can materially limit renewal protection.

Stop loss protection is defined as much by contract structure as by premium level. Employers should review deductible levels and policy provisions holistically and evaluate stop loss cost in the context of total medical spend.

Navigating a Hardened Stop Loss Market

Carriers are requesting more detailed and frequent data as underwriting becomes more conservative

Successfully managing stop loss in a hardened market requires active engagement rather than passive renewal. Employers with access to flexible TPAs, specialty vendors and targeted clinical programs are better positioned to manage catastrophic risk and influence outcomes. As underwriting tightens, data readiness increasingly determines negotiating leverage and access to alternatives.

In a hardened stop loss market, execution discipline and data readiness materially influence outcomes. Employers should engage early with experienced professionals and monitor claims performance throughout the year to help support both renewal positioning and long-term cost management.

1CarelonRx. Specialty Drug Growth, 2026. 2Sun Life. High Cost Claim and Injectable Drug Trends Analysis, 2025. 3Brown & Brown Stop Loss Data

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