In today’s healthcare landscape, catastrophic and unexpected medical claims are increasingly common. This rise can be attributed to medical and pharmaceutical advancements, such as specialty drugs and cell and gene therapies, alongside the effects of medical price inflation.
As a result, many employers with self-funded health plans are seeking ways to mitigate their financial exposure to such potentially devastating claims.
One effective strategy is the purchase of stop-loss insurance.
What Is Stop-loss Insurance?
Stop-loss insurance offers a safety net for self-funded employers by capping their financial exposure to employee medical claims that exceed a predetermined threshold. Unlike traditional medical insurance, it doesn’t cover employees directly but rather limits the employer’s liability for high-cost claims.
Key Benefits
Sets a Ceiling on Health Claim Costs: Prevents unexpected and excessive claims from draining financial reserves.
Offers Financial Stability: Reduces uncertainty in budgeting for health claim expenses.
Supports Self-Funding: Allows employers to self-fund their health plans with a safety net against large claims.
How Does Stop-loss Insurance Work?
Under a stop-loss insurance policy, an employer’s liability for health claims is constrained to a set amount, known as the attachment point. Once claims exceed this limit, the insurer reimburses the excess, ensuring that abnormal claims do not destabilize the employer’s finances.
Example
If your attachment point is $100,000, your policy would cover all claims exceeding this amount within the plan year. Employers pay for the initial claims up to the attachment point, at which point the stop-loss coverage starts to reimburse them.
Types of Stop-loss Insurance
Understanding the different types of stop-loss insurance can help you determine which best fits your organization’s needs:
Individual (Specific) Stop-loss Insurance
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- Focuses on Single High Claims: Limits liability on claims made by individual employees.
- Protection from Outliers: Shields against unexpectedly high medical expenses from a single person.
Aggregate Stop-loss Insurance
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- Covers Group Totals: Safeguards against cumulative high claims for all employees.
- Financial Security for Groups: Provides a safety net when total health expenses exceed a percentage of expected claims, typically between 120% to 125%.
Considerations for Employers
Every organization is unique, so evaluating stop-loss insurance involves several critical factors:
Understanding the Attachment Point
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- Individual Policies: Attachment point is a specific dollar amount per employee.
- Aggregate Policies: Based on a percentage of expected total claims.
Evaluating Coverage Limitations
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- Medical Underwriting: Insurers may exclude certain conditions or impose higher thresholds for specific high-cost claims, a process known as “lasering.”
- Contract Renewal: High-cost claimants may only be covered short-term, exposing employers to subsequent risk upon policy renewal.
Monitoring Increasing Costs
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- Annual Cost Increase: Premiums may rise each year, reflecting the prior year’s claims.
- Provider Rates: High claims can impact the ability to negotiate favorable rates with insurers.
Ensuring Policy Alignment
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- Coverage Gaps: Some treatments or employee classes may be excluded, leaving employers financially responsible for those expenses.
- Policy Review: Regularly review both stop-loss policies and health plan provisions to ensure they align and adequately minimize financial risks.
Selecting the right stop-loss insurance policy is crucial for managing the financial risks associated with self-funded health plans. This coverage can dramatically reduce insurance costs, mitigate risks, and contribute to overall workforce health. As catastrophic health claims continue to rise, understanding and leveraging stop-loss insurance can make a significant difference in protecting your organization’s financial stability.
Want to learn more about the ideal stop-loss insurance policy for your organization? Reach out at or 888.263.4656. Our experts would love to discuss your unique needs and provide solutions.
