Q3 State of the Market: Rising Risk Calls for Flexible Thinking

July renewals removed any doubt: The employer stop-loss market has hardened.

Medical costs are accelerating. High-dollar claims are becoming more frequent and severe. After several years of unsustainable results, stop-loss carriers are correcting through higher rates, more conservative underwriting and tighter contract terms.

The pressure is real. But the answer is not a one-size-fits-all funding strategy. Employers need stronger protection from volatility – and the flexibility to address the cost drivers unique to their health plan.

According to HM Insurance Group, the stop-loss market recorded a 91% loss ratio in 2025, contributing to rate increases exceeding 20% across the broader market. While first-dollar medical trend may moderate in 2027, leveraged stop-loss trend is expected to remain elevated.

The July market reflected that reality: significant price increases, fewer competitive alternatives and greater carrier scrutiny. Traditional renewal shopping produced fewer meaningful options.

PwC projects commercial medical cost trend will reach 9% in 2027 – the highest level in 17 years.

AI is creating a new imbalance: 70% of health plans rank provider tools that capture more revenue as a top-three cost inflator, while WTW found that only 20% of employers have operationalized AI within their benefits programs. Providers are moving faster to optimize reimbursement than employers are to use AI for analytics, claims monitoring and cost control.

Hospital costs are also consequential. KFF found that prices paid by private insurers for hospital care increased 30% from April 2019 to April 2026, compared with a 21% increase in Medicare rates. Meanwhile, pharmaceutical and clinical advances are improving outcomes while introducing new multimillion-dollar exposures.

These forces are reshaping catastrophic claims. HM reported a 56% increase from 2024 to 2025 in projected per-employee costs for claims exceeding $500,000. The frequency of million-dollar claims increased 50%, while their severity rose 72%.

This is the reality employers are carrying into the 1/1 renewal season: The cost of care is rising, and the cost of transferring that risk is rising with it.

The wrong response is to declare one funding model the winner.

There is no single right way to self-fund. Employers need a structure aligned with their workforce, financial tolerance and regional healthcare ecosystem.

Every health plan contains three distinct components: access, financial protection and management of claims below stop-loss. Separating them gives employers greater visibility and advisors more freedom to select the right carriers, administrators, networks and cost-management partners.

Self-funding does not solve healthcare costs. It creates the platform to manage them—if the employer’s risk is protected appropriately.

Risk should come first. Employers need realistic aggregate protection, clearly defined maximum exposure and contract provisions that endure beyond one favorable year. Saving on protection can become extraordinarily expensive if it introduces new lasers, excessive corridors, shared liability or renewal uncertainty.

This is where VERIS, the independent national consortium model, delivers greater stability.

As the broader market experienced significant stop-loss pressure during July renewals, the VERIS block remained comparatively insulated. That outcome reflects disciplined actuarial underwriting, diversified purchasing power, long-term carrier alignment and complete employer protection – including guaranteed renewability, no new lasers at renewal and rate caps.

The Pay at Max funding approach adds another layer of budget stability.

Employers fund to a defined maximum monthly amount instead of absorbing unpredictable claims fluctuations throughout the year. When claims perform favorably, 100% of available surplus belongs to the employer.

The result is defined exposure on the front end without giving up the upside of self-funding.