Stop loss insurance is a type of plan that protects an employer from the risk of one employee’s healthcare needs putting the business at risk. If you’re like most people, you probably don’t think too much about stop loss and how it works. And that’s okay! As long as your health insurance plan has stop loss coverage, you can rest easy knowing that your company won’t be on the hook for medical expenses that are above a certain threshold. But if you want to know more about stop loss policies and how they work, read on!
In this guide, we find out What Is Stop Loss For Health Insurance, how does a stop loss work in insurance, types of stop loss insurance, and what is the purpose of a stop loss provision in a health insurance plan.
What Is Stop Loss For Health Insurance
Stop Loss, or Stop Loss Insurance, covers medical costs that are incurred by participants above a specified level.
Stop loss insurance is a type of coverage that ensures that an insured’s losses are limited to a specified amount. Essentially, it puts a cap on the maximum amount you will have to pay out of pocket for your health care expenses. This can be beneficial if you have high-cost medical bills or other costs associated with an injury or illness (e.g., lost wages).
With stop loss in place, if your medical expenses exceed what is covered by your basic health insurance plan, then the insurance company will cover all of those excess charges up to their predetermined maximum limit for any given year – say $250,000 – before passing any additional costs onto you as the policyholder.
If a health plan has $1 million stop loss coverage, the insurance company will pay any costs incurred by a participant that exceed $1 million. In the absence of such coverage, an employer would have to pay all of those excess costs.
If a health plan has $1 million stop loss coverage, the insurance company will pay any costs incurred by a participant that exceed $1 million. In the absence of such coverage, an employer would have to pay all of those excess costs. This is an example of a benefit that can be provided by stop loss insurance.
In some cases, employers purchase stop loss coverage upfront before their employees are enrolled in the healthcare plan with no copayment or coinsurance required from their employees. Other employers may require employees to pay for their own stop loss coverage through a payroll deduction; however, this type of deductibles can be waived if they meet certain requirements (for instance, they must not be able to afford it).
The insurance carrier assumes the risk and can thus purchase better plans for participants at a lower overall cost.
The insurance company is able to purchase a better plan for the group at a lower overall cost. This means that you may be able to get a plan with a lower deductible or co-pay, or even one that has an out of pocket maximum that is lower than what was originally offered.
The insurance company can also reduce your premium costs by negotiating better rates with providers in their network. The provider usually gets some sort of kickback if they give discounts, so this is another win-win situation for everyone involved!
Stop loss coverage is typically included in self-funded group health plans and wraps around other insurance policies with aggregate or specific limits.
Stop loss coverage is typically included in self-funded group health plans and wraps around other insurance policies with aggregate or specific limits.
Aggregate stop loss is the maximum amount that the insurance company will pay for all claims for all plan participants. Specific stop loss is the maximum amount that the insurance company will pay for all claims for one individual participant.
In some cases, a plan sponsor may decide to use only one aggregate stop loss limit rather than both types of limits (aggregate and specific).
Aggregate insurance refers to stop loss coverage for claims for all plan participants, while specific stop loss refers to claims for individual members.
When it comes to stop loss for health insurance, you need to understand the difference between aggregate and specific coverage.
Aggregate stop loss refers to claims for all plan participants, while specific stop loss refers to claims for individual members. Aggregate stop loss covers all claims for plan members (for example, if someone gets sick and their medical bills are much higher than expected), while specific stop loss only covers certain types of treatment (such as surgery or cancer) that may be included in your policy’s coverage.
Stop Loss protects employers from the risk of one employee’s healthcare needs putting them at risk
Stop loss is a type of insurance that protects your business from the risks associated with one employee’s healthcare needs. If an employee has a serious or expensive illness, and the costs are higher than their plan’s stop-loss limit, your company won’t have to pay those expenses.
In addition to helping you avoid hefty medical bills, stop loss can also help you manage other cost factors associated with group health coverage. For instance:
- Stop loss allows employers to set limits on how much they’ll spend on employees’ claims each year (and/or per employee).
- It reduces premiums by spreading out risk among all insured groups participating in the plan.
how does a stop loss work in insurance
Stop loss insurance is exactly what the name implies – a policy that enables your business to predictably cap expenses for employee medical bills. It’s a specialized type of coverage designed to protect self-insured employers from catastrophic losses.
An increasing number of businesses of all sizes are choosing to forego traditional group health insurance plans, due to steadily rising costs and increasing employee dissatisfaction with high contributions and/or deductibles. Instead, employers are self-insuring their medical benefits programs. Some companies handle self-insurance by establishing a dedicated fund out of which to pay employee and family medical costs. Others simply use existing cash flow to pay the bills.
The effect on employees of switching to self-funding may be minimal. The process of obtaining medical services remains the same. Behind the scenes, the provider would simply send invoices to the patient’s employer rather than to a third-party insurance provider.
Nonetheless, the health plan’s specifics could change, depending on what the employer decides to cover and to what extent. Because self-funded plans are exempt from state-mandated requirements, companies have more flexibility to create employee-tailored coverage. In many cases, workers could also wind up with broader provider options, because they wouldn’t be restricted to an insurance company’s defined network.
For employers, self-insurance can bring distinct financial benefits. Stop loss insurance protects those benefits.
How stop loss insurance works
Stop loss insurance is not medical insurance, it is a financial and risk management tool for businesses. It has nothing directly to do with a company’s employees.
Self-insurance can save money, but without a health insurance provider in the mix, the employer is entirely responsible for all qualifying medical costs. If employees remain healthy, that’s not a problem. But if many become ill – say, by contracting the latest flu virus — or even one person is diagnosed with cancer, medical costs can soar well beyond the company’s ability to pay.
In a worst-case scenario, that could drive an employer out of business. Failure to pay the employee’s medical bills could leave a company vulnerable to lawsuits, with equally disastrous results.
With stop loss insurance, the employer’s out-of-pocket is capped at an agreed amount. If costs exceed that threshold, any additional expenses are covered by the stop loss policy. It’s important to note that this coverage comes in the form of reimbursement, so employers are still responsible for initial payment. It’s also important to note that stop loss insurance itself often has coverage limits.
While most companies and their stop loss insurer “settle up” at the end of the policy year, some employers are able to lighten their potential financial burden by negotiating monthly payments instead. The downside to this is that, if those payments have exceeded actual need by the end of the year, the employer will have to repay the difference.
There are actually two types of stop loss insurance that help limit employer liability:
It is possible to obtain just one type of coverage. However, for most employers, both individual and aggregate coverage are equally important. You want maximum financial protection, and health plan usage is highly unpredictable.
Aside from a widespread virus outbreak or an individual cancer diagnosis, employees and their dependents can have other costly chronic diseases. They may require emergency surgery or even need an organ transplant. People have accidents that can have devastating medical consequences. Premature infants may spend weeks or months in hospital. And the costs for advanced medical technologies and treatments are high and rising.
If employees and their families remain healthy and the number of medical claims for the year is low, risk is also low. But unexpected medical claims can easily soar into the hundreds of thousands of dollars. That can deplete a company’s self-insurance cash reserve or put a terrible strain on cash flow, damaging the company’s ability to operate effectively. The potential for company-wide ramifications is a universal risk, but it is most pronounced for smaller companies.
Is stop loss insurance right for your company?
Industry experts say this coverage is a must-have for every self-insured company. Otherwise, the financial exposure and related risks are just too great. On the other hand, every company brings a unique set of factors to the decision table, so determining the value of stop loss becomes a balancing act between cost and perceived risk.
A company with a young, healthy, and largely unmarried workforce may be less at risk than one with older employees with families. Ultimately, after doing all the math, employers may find that a traditional group health insurance plan makes the most financial sense.
Once you’ve made the decision to purchase stop loss insurance, you’ll want to shop around. Not every insurer offers this type of coverage, and policies can vary considerably in their detail and the cost of premiums.
Pulling it all together
Savvy employers know that offering attractive, meaningful benefits boosts their ability to recruit and retain top talent. Employees who believe their benefits to be valuable are more productive and have higher job satisfaction. And affordable health insurance is a priority benefit for most employees. With all that in mind, companies continue to search for health plans that meet both corporate and worker needs.
types of stop loss insurance
Stop-loss is a common phrase used in the health insurance industry, but what exactly does this entail? Any time you have a self-funded or self-insured plan, your employer will also have stop-loss insurance to cover medical expenses during catastrophic events. A traditional insurance broker quotes stop-loss coverage through an underwriter, which provides additional coverage protecting the employer group or employer from being responsible for claims costs that extend beyond a specified amount.
A Closer Look at the Two Types of Stop-Loss in Health Insurance
In a traditional broker model, there are two major types of stop-loss insurance an employer or employer group may carry. However, stop-loss as a concept is far more in-depth than just two standard plans from which to choose. Stop-loss should be an intrinsic factor of claims and costs—if claims and costs are higher, stop-loss coverage must be greater. Within a transparent pricing model, as opposed to a traditional plan, you can reduce claims costs and incorporate a transparent pricing model. This leads to reduced liability covered by stop-loss, and the coverage itself becomes less expensive. Here is a closer look at the two major stop-loss insurance plans generally available, and what the coverage entails.
Specific Deductible Plans
Specific deductible stop-loss insurance is one type of policy. With a specific deductible plan, each employee has a preset amount of money that the employer can spend on their claims. The employer then would not be liable to pay for claims costs beyond that predetermined deductible. For example, if a member of the employer group has $200,000 in claims and the employer purchased a $100,000-specific deductible plan for that employee, the stop-loss policy would pay the costs over $100,000.
Aggregate Deductible Plans
An aggregate deductible, oftentimes referred to as an ag deductible, involves the total liability the employee owes to the employer. For instance, if the employer has some employees with small claims and some employees with big claims, these costs would be added together and could not exceed the aggregate deductible reached. Ultimately, that aggregate deductible may be several million dollars. Basically, the aggregate deductible would be considered their maximum expense risk because the policy would kick in and pay for expenses after cumulative claims costs reach a certain point.
“What’s Your Stop-Loss?” Is Not the Biggest Concern with Health Insurance Quotes
Stop-loss coverage is important when it comes to overall employer or employer group costs. However, it is actually more imperative to look at the real cost drivers of an overall plan. In a plan focused on transparent pricing and customized to an employer group as opposed to a traditional plan, an employer group will likely see a dramatic reduction in overall claims costs. In turn, this leads to the possibility of lower stop-loss coverage limits and lower investment costs for stop-loss premiums.
When it comes to traditional brokers and stop-loss insurance, most health insurance brokers are comparing an existing plan with similar options in an effort to reduce costs to some degree. This generally only may lead to cost reductions of a few percentage points. By contrast, a plan with transparent pricing offers benefits that may reduce employer costs by as much as 30 percent.
Find Out More About How ClearChain Health Reduces Stop-Loss Premiums
With clear-cut pricing models so employers know precisely what they will be spending per employee enrolled, stop-loss coverage premiums may be reduced substantially. If you would like to know more about ClearChain Health as an employer, feel free to reach out to us for more information.
what is the purpose of a stop loss provision in a health insurance plan
Stop loss insurance is exactly what the name implies – a policy that enables your business to predictably cap expenses for employee medical bills. It’s a specialized type of coverage designed to protect self-insured employers from catastrophic losses.
An increasing number of businesses of all sizes are choosing to forego traditional group health insurance plans, due to steadily rising costs and increasing employee dissatisfaction with high contributions and/or deductibles. Instead, employers are self-insuring their medical benefits programs. Some companies handle self-insurance by establishing a dedicated fund out of which to pay employee and family medical costs. Others simply use existing cash flow to pay the bills.
The effect on employees of switching to self-funding may be minimal. The process of obtaining medical services remains the same. Behind the scenes, the provider would simply send invoices to the patient’s employer rather than to a third-party insurance provider.
Nonetheless, the health plan’s specifics could change, depending on what the employer decides to cover and to what extent. Because self-funded plans are exempt from state-mandated requirements, companies have more flexibility to create employee-tailored coverage. In many cases, workers could also wind up with broader provider options, because they wouldn’t be restricted to an insurance company’s defined network.
For employers, self-insurance can bring distinct financial benefits. Stop loss insurance protects those benefits.
How stop loss insurance works
Stop loss insurance is not medical insurance, it is a financial and risk management tool for businesses. It has nothing directly to do with a company’s employees.
Self-insurance can save money, but without a health insurance provider in the mix, the employer is entirely responsible for all qualifying medical costs. If employees remain healthy, that’s not a problem. But if many become ill – say, by contracting the latest flu virus — or even one person is diagnosed with cancer, medical costs can soar well beyond the company’s ability to pay.
In a worst-case scenario, that could drive an employer out of business. Failure to pay the employee’s medical bills could leave a company vulnerable to lawsuits, with equally disastrous results.
With stop loss insurance, the employer’s out-of-pocket is capped at an agreed amount. If costs exceed that threshold, any additional expenses are covered by the stop loss policy. It’s important to note that this coverage comes in the form of reimbursement, so employers are still responsible for initial payment. It’s also important to note that stop loss insurance itself often has coverage limits.
While most companies and their stop loss insurer “settle up” at the end of the policy year, some employers are able to lighten their potential financial burden by negotiating monthly payments instead. The downside to this is that, if those payments have exceeded actual need by the end of the year, the employer will have to repay the difference.
There are actually two types of stop loss insurance that help limit employer liability:
It is possible to obtain just one type of coverage. However, for most employers, both individual and aggregate coverage are equally important. You want maximum financial protection, and health plan usage is highly unpredictable.
Aside from a widespread virus outbreak or an individual cancer diagnosis, employees and their dependents can have other costly chronic diseases. They may require emergency surgery or even need an organ transplant. People have accidents that can have devastating medical consequences. Premature infants may spend weeks or months in hospital. And the costs for advanced medical technologies and treatments are high and rising.
If employees and their families remain healthy and the number of medical claims for the year is low, risk is also low. But unexpected medical claims can easily soar into the hundreds of thousands of dollars. That can deplete a company’s self-insurance cash reserve or put a terrible strain on cash flow, damaging the company’s ability to operate effectively. The potential for company-wide ramifications is a universal risk, but it is most pronounced for smaller companies.
Consider these statistics:
Is stop loss insurance right for your company?
Industry experts say this coverage is a must-have for every self-insured company. Otherwise, the financial exposure and related risks are just too great. On the other hand, every company brings a unique set of factors to the decision table, so determining the value of stop loss becomes a balancing act between cost and perceived risk.
A company with a young, healthy, and largely unmarried workforce may be less at risk than one with older employees with families. Ultimately, after doing all the math, employers may find that a traditional group health insurance plan makes the most financial sense.
Once you’ve made the decision to purchase stop loss insurance, you’ll want to shop around. Not every insurer offers this type of coverage, and policies can vary considerably in their detail and the cost of premiums.
Pulling it all together
Savvy employers know that offering attractive, meaningful benefits boosts their ability to recruit and retain top talent. Employees who believe their benefits to be valuable are more productive and have higher job satisfaction. And affordable health insurance is a priority benefit for most employees. With all that in mind, companies continue to search for health plans that meet both corporate and worker needs.