Stop-Loss Insurance for Businesses and Individuals

Stop-loss insurance can be a game-changer for businesses and individuals alike, providing a safety net against unexpected medical expenses.

For businesses, stop-loss insurance can help protect against financial losses due to employee health claims, with some policies covering up to 100% of claims exceeding a certain threshold.

Individuals, on the other hand, can benefit from stop-loss insurance by shielding themselves from high medical bills, such as those resulting from catastrophic illnesses or accidents.

In fact, some stop-loss insurance plans can even cover up to $1 million or more in medical expenses, providing peace of mind for those who may not be able to afford such costs out-of-pocket.

Stop-loss insurance is designed to protect employers from unexpected and potentially crippling medical claims.

This type of insurance is particularly important for self-funded plans, which rely on employer financial reserves to cover claims.

Aggregate stop-loss insurance limits claim coverage to a specific amount, preventing catastrophic claims from draining employer reserves.

If total claims exceed the aggregate limit, the stop-loss insurer covers the claims or reimburses the employer.

Stop-loss insurance offers numerous benefits and advantages to self-funded employers. By incorporating stop-loss into their insurance policy, employers can limit their risk and safeguard themselves against high claims. This is particularly evident in the case of complications due to the birth of twins, where a study in 2016 revealed that self-funded insurers received $6.7 million in claim reimbursements for high-claims associated with this situation.

One of the key benefits of stop-loss insurance is that it allows employers to avoid paying high claims for everyone on their plan. This is because a study found that 1% of claimants generate 25% to 35% of claims, and stop-loss policies reimburse employers for these high claims. This can have a significant impact on a company's bottom-line, as seen in the example of the 11 to 24 claims of $1,000,000 per million members that grew from 2005 to 2010.

Incorporating stop-loss into their insurance policy also enables employers to benefit from self-funding while limiting the associated risk from a catastrophic single claim or limit overall claim liability. By doing so, employers can avoid the high costs associated with traditional insurance policies and instead opt for a more cost-effective solution.

The following table highlights the benefits of stop-loss insurance:

Creating a stop-loss plan can be a complex process, but it's essential to understand the options and riders available to help with cash flow challenges, risk tolerance levels, and management of long-term claim situations.

Employers can estimate the average dollar value of claims expected by employee per month, which can range from $200 to $500 per month.

To create a plan, employers need to consider the type of deductible they want to have, either monthly or annual. A monthly deductible can change every month, while an annual deductible is usually based on estimates from the initial month of coverage and is often slightly lower than the summation of deductibles over 12 months.

Employers should also consider the benefits of switching to self-funding, which can include lower operations costs, reduced state premium taxes, increased cash flow, and access to claims data that can help craft more effective health plans.

Here are the benefits of self-funding:

Stop-loss insurance is designed to protect self-funded employers from catastrophic medical claims that can deplete a company's cash reserve or put a strain on cash flow. More than 85% of self-insured employers who have up to 5,000 employees buy stop-loss insurance.

The coverage is similar to high-deductible insurance, with the employer remaining responsible for claims below the deductible amount. The deductible or attachment for aggregate stop-loss insurance is calculated based on several factors, including an estimated value of claims per month and the number of enrolled employees.

There are two types of stop-loss insurance: individual, or specific, coverage and total claims, or aggregate, coverage. Individual coverage protects against large, catastrophic claims, while aggregate coverage protects against unexpectedly high overall claims volume.

Employers can choose to obtain just one type of coverage, but for most, both individual and aggregate coverage are equally important. This is because health plan usage is highly unpredictable, and unexpected medical claims can easily soar into the hundreds of thousands of dollars.

Here are some key statistics to consider:

Ultimately, the decision to purchase stop-loss insurance depends on a company's unique set of factors, including its workforce demographics and financial situation. It's essential to shop around and compare policies to find the best fit for your company's needs.

There are two main types of stop-loss insurance: Specific Stop-Loss and Aggregate Stop-Loss.

Specific Stop-Loss protects a self-insured employer against large claims incurred by a single individual.

This form of stop-loss coverage reimburses the employer when claims for an individual exceed a specified deductible.

Aggregate 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 an Aggregate Stop-Loss policy, the insurance carrier reimburses the employer after the end of the contract period for aggregate claims.

Employers can choose to protect their plan with a combination of both specific and aggregate stop-loss coverages.

Contract Terms are a crucial aspect of stop-loss insurance policies. They determine the liability of the insurance carrier and the employer's responsibilities.

A "12/12" Contract requires claims to be incurred and paid during the plan year. This means that both the claim and payment must happen within the same 12-month period.

A "12/15" Contract has a slightly different requirement, where claims must be incurred during the plan year and paid either during the plan year or within three months after its end.

The "15/12" Contract has the most restrictive requirement, where claims must be incurred in the three months prior to the end of the plan date and paid during the plan year.

Deductibles are another important contract term, setting the limit at which the insurance company becomes liable for paying medical claims.

Here's a summary of the different contract terms:

It's essential to discuss these contract terms with your insurance carrier to understand the best option for your company and how it can impact your company's bottom line.