Stop-Loss Insurance Coverage is defined as a layer of coverage that provides reimbursement to self-insured employers for catastrophic claims exceeding predetermined levels. This coverage is purchased by employers who self-fund their employee benefit plan so that they don’t have to assume all of the liability for losses arising from an extremely high medical claim.
There are many different options for stop-loss coverages and contracts. Before you draft a contract or schedule a meeting with your insurance carrier, here is a brief introduction to the different stop-loss options, contracts, and terms.
Specific Stop-Loss: This form of stop-loss coverage protects a self-insured employer against large claims incurred by a single individual. Under a specific stop-loss policy, the employer will be reimbursed when claims for an individual exceed a specified deductible.
Aggregate Stop-Loss: This form of stop-loss provides a ceiling to the amount that an employer would pay in expenses on the entire plan, on an aggregate basis, during a contract period. Under this policy, the insurance carrier reimburses the employer after the end of the contract period for aggregate claims.
There are a number of variations available for each of these coverages, and there are employers that protect their plan with a combination of both specific and aggregate stop-loss coverages. Here is a quick overview of what specific and aggregate stop-loss policies may look like for your organization.
Under a Specific Stop-Loss Policy, an employer may elect for a maximum liability per person on their benefits plan. If the claims exceed that point, the stop-loss policy will reimburse the employer for the claims in excess of that amount.
For example, if an employer elects that their maximum liability per person on their benefits plan for that policy year be $100,000, and a specific claimant exceeds that liability and their total claims are $102,000, the stop-loss policy will reimburse them for claims in excess of that amount, the $2,000.
Maximum liability per person is determined by employers and their insurance carriers, and the amount an insurance carrier is willing to be liable for is subject to their specific policies.
Aggregate Stop-Loss protects against higher than anticipated claims for the entire plan. If the total paid claims exceed the established point amount, the carrier will reimburse the employer for the excess.
The point at which the insurance carrier is liable is determined by the carrier, and is generally derived from the enrollment on the employer’s insurance plan and on the aggregate attachment factor. The process for determining the aggregate attachment factor is as follows:
An example of deriving the Aggregate Stop-Loss coverage is as follows:
In order to fully understand stop-loss policies, it is critical to know the different stop-loss contract terms. Stop-loss contracts are written depending on the agreement made between the insurance carrier and employer.
These contracts specify the time period when the insurer is liable to cover claims and by what time employers must pay the claims they are liable for. There are many different term agreements, and which terms an employer is subject to depends on the contract between the employer and the insurance carrier. These different contract terms can include policies such as:
There are many different coverages, contracts, and terms to be aware of when integrating a stop-loss policy in your insurance plan. It is important to open the conversation with your insurance carrier about these different options, to not only understand the best option for your company, but also to understand how a stop-loss policy can impact your company’s bottom- line and safeguard your company overall.
By incorporating stop-loss into their insurance policy, these self-funded employers are limiting their risk, safeguarding themselves against high claims, and impacting their bottom-line by opting out of expensive, traditional insurance policies.
Stop-loss allows employers to benefit from self-funding while limiting the associated risk from a catastrophic single claim or limit overall claim liability. Employers integrating these policies into their insurance plans are taking this one- step further and investing in technologies that they can utilize to show identify historic cost trends and forecast future spending.
Aggregate stop-loss policies are negotiated based on many different criteria, one of which is an employer’s claimant history. In addition, when negotiating any stop-loss policy insurance carriers can exclude high claimants from a policy.
Employers are integrating health analytics platforms with specific stop-loss reporting features to identify and engage high-cost claimants and to keep healthy members healthy. By leveraging this technology, employers have the ability to affect their future rates, and improve the health of their population overall.
These health analytics platforms can also illustrate to employers their specific historical cost trends, and see their forecasted spend. Employers, therefore, are utilizing this technology to understand the savings opportunities of incorporating stop-loss into their insurance policy.