Aggregate stop loss and specific stop loss are kind of like rain boots and umbrellas. They work in slightly different ways to address the same problem. You can choose to use both types or just one depending on what kind of protection you need, both using both is the best way to limit your exposure in a storm.
Stop loss coverage creates a ceiling for how much a self-insured employer has to pay for high claims, and aggregate and specific are two forms of this coverage. Self-insured employers who want to manage risk may use both types of coverage to achieve maximum protection from high-value claims.
What Aggregate Stop Loss Does
Aggregate stop loss puts a cap on the amount that a self-insured employer has to pay across an entire plan year. Having an aggregate stop loss policy helps the employer budget for its healthcare costs with some accuracy, since this policy lets the employer put a dollar figure on its maximum potential liability for the plan year.
Working with a third-party administrator or insurer, a client with this type of policy will set an aggregate deductible that’s based on its total expected monthly claims and its risk tolerance. That number is multiplied by a percentage (commonly 125 percent) to determine the plan’s aggregate attachment point. The company pays for its claims, and at the end of the policy period, it’s reimbursed for any claims that exceeded the aggregate attachment point.
What Specific Stop Loss Does
While aggregate stop loss coverage protected a self-funded employer against higher-than-expected costs across its entire plan, specific stop loss puts a cap on the amount that the employer will pay for any one individual claim. This type of protection shields the employer from great risk if any plan members incur catastrophic claims. An employee who needs a heart transplant, or has a serious accident and requires weeks of hospitalization, could easily incur hundreds of thousands of dollars in medical bills. Cancer, certain chronic conditions and childbirth complications are all pretty routine diagnoses that can cause individual employees’ claims to skyrocket.
Like with aggregate stop loss policies, a specific stop loss policy has a specific deductible. There are a number of factors involved in setting this number. Some self-funded plans have a specific deductible of $50,000, while others have a $1 million deductible. Somewhere around $200,000 to $300,000 is a pretty typical range. The self-insured employer is responsible for individual claims that fall below the deductible. For claims above the deductible, the employer pays upfront and the stop loss carrier reimburses any portion exceeding that threshold. Specific claims may be reimbursed as soon as the individual’s deductible has been met.
Making the Right Choice For You
It’s common for self-insured companies that buy stop loss coverage to choose both aggregate and specific policies. Few companies, outside of major corporations, have adequate resources to absorb whatever claims their members incur. And again, having both specific and aggregate stop loss policies is really useful for projecting costs, so this is a kind of protection that most self-insured employers want. Sometimes employers opt for just specific coverage, or just aggregate coverage, depending on their needs and circumstances.
Just as aggregate and specific deductibles vary widely based on the employer’s needs, so do stop loss premiums. It’s tough to predict exactly what you’ll pay for your policy until you’ve sat down and worked through the options with a plan administrator. Your company’s risk tolerance will play a big role in what you pay for premiums. But if your company already has a budget established you may be able to tailor your plan to meet that budget, without compromising the quality of healthcare your employees receive. Remember, one of the prime benefits of self-funding is that it lets the employer trim waste and pay only for the services its employees receive.
Do you have specific questions about specific or aggregate stop loss? Understanding these options is really critical to making sure your self-funded plan is complete. Stop Loss Insurance, Inc is always here to help. Get in contact anytime to learn more.