A Message from the CEO
 by Charles Crispin, President & CEO, Evergreen Re

 Unprecedented Growth in Catastrophic Claims May Leave Health Plans Exposed

By 2010, the severity and frequency of catastrophic healthcare claims are expected to grow to unprecedented levels, according to a study recently commissioned by Evergreen Re.

The frequency of catastrophic claims, defined as a member incurring medical claims of $1 million or more in a year, increased ten-fold from the year 2000 to 2005, from less than 1/10th of one member per 100,000 health plan members in 2000 to 1.1 per 100,000 members in 2005. While this increased incidence is staggering, there is no reason to believe the increased frequency will not continue. Using an assumption of 7% annual trend, 2.4 per 100,000 members would have a claim exceeding $1,000,000 by 2010 (twice as many as in 2005). Assuming 11% level trend, the frequency would jump to 3.6 per 100,000 members.

Behind the significant growth in the frequency of catastrophic claims are the exceptional advances in medical technology, biotechnology and pharmaceuticals, compounded by America’s insatiable demand for the latest and greatest drugs and treatment options.

Technology and biotechnology advances have changed the nature of risk, leaving many health plan insurers vulnerable to these potentially high cost claims. Unfortunately, many health insurance plans don’t have adequate reinsurance coverage to deal with today’s new reality. Traditional ways of covering risk and protecting against these challenges can leave plans totally exposed.

According to the recent study, in 2005, the top ten most expensive claims included three chronic respiratory cases ranging from $2 million to $3 million; two neonatal intensive care cases with claims around $2 million and several heart, cancer and trauma cases totaling $22 million in paid claims.

While respiratory illness and premature births continue to be at the top of the list of catastrophic claims, other factors contributing to the severity of claims include transplants and the cost of biotech drugs and therapies.

Premature births have increased 27% from 1980 and nearly 12% of all births require neonatal intensive care, with the number climbing higher among the Medicaid population. The average cost per day in a neonatal intensive care unit can easily exceed $15,000.

The cost of a transplant episode can rise to more than $1 million depending on the circumstances. There is expected to be an unprecedented level of transplants during the next few years, given the new initiatives to encourage donation as well as the 135% increase in live donors since 1993. While this is great news for the more than 93,000 Americans on the national organ waiting list, it could present major challenges to insurance plans.

Specialty drugs and therapies are projected to grow from $54 billion this year to $99 billion by 2010. There are approximately 90 biotech drugs available today, 600 in the FDA approval process and about 276 in development.

The cost of these drugs can exceed several million dollars for one member alone, leaving health plans unprepared for these potential massive claims. In 2005, a health plan in the Midwest was presented with a $5 million claim for a hemophiliac member over the course of four months, from pre-surgery to post-surgery, with outpatient costs exceeding $3 million. The outpatient claim was primarily the cost of the factor product the member needed.

The delivery of these therapies and drugs can have a major impact if plans are not properly insured. Coverage for traditional in-hospital care – at one time the location for most if not all of these high-cost claims – would no longer be adequate to cover these therapies now being delivered in outpatient facilities, physician offices and even at home.