Aggregate vs Specific Stop Loss Insurance

While stop-loss coverage has become an increasingly popular tool for self-insured employers, it’s still a topic of confusion for many people. The purpose of stop-loss coverage is to provide a layer of financial protection for employers self-fund their health coverage, capping the amount that the employer will have to pay for medical claims its covered members incur. Including a stop-loss provision as part of an employee health plan helps a self-insured employer control its healthcare costs while still providing the high-quality medical coverage its employees want. Two primary types of stop-loss policies exist, aggregate and specific, and employers typically use both types to give themselves maximum financial protection.

How does a stop-loss policy work with self-funded insurance? 

With fully-funded health insurance, the employer pays set premiums to an insurance carrier, which then pays for claims the employer’s covered members incur. The employer may end up paying more in premiums and fees than their members actually spend on claims. Fully-funded insurance plans also tend to be restrictive since they’re designed to accommodate thousands and thousands of covered members from many different businesses. If you’re the employer, a fully-funded insurance plan may not serve your specific employees’ wants and needs. 

Self-funding is an alternative way for an employer to provide health coverage. Instead of paying premiums to an insurance carrier, the employer creates a fund that it uses to pay its members’ claims directly. This system can work well as long as employees and their covered dependents stay mostly healthy and their claims are low, but catastrophic claims can wipe out the fund. 

Self-insured employers use stop-loss insurance to cover claims above a certain dollar amount. An employer with a stop-loss policy pays premiums to a stop-loss carrier and the carrier agrees to pay for claims above a certain threshold, after a deductible and coinsurance have been paid. 

There’s a lot of flexibility around how self-insured employers structure employee health benefits, and there are a lot of factors that affect how much they pay for stop-loss coverage. For example, how young and healthy is the workforce overall? Stop-loss carriers use census data about an organization’s employees to determine rates and terms. An employer with a largely young and healthy workforce may pay less for stop-loss coverage than an employer with an older workforce, since older employees are generally more likely to need expensive medical care. Employers can also take advantage of cost-saving strategies like lasering, which assigns a higher deductible to specific employees who are likely to have higher-than-average medical claims.

Types of Stop Loss Insurance

There are two primary types of stop-loss coverage. Self-insured employers commonly have both aggregate and specific stop-loss policies for maximum protection against high-cost claims. 

Aggregate Stop Loss

Aggregate stop loss creates a cap on how much the employer will be obligated to pay for all of its claims across a full plan year. The employer and stop-loss carrier establish an aggregate attachment point, which is essentially the dollar amount past which the stop-loss coverage kicks in. Say an employer has an aggregate attachment point of $1 million, but its employees incur $1.3 million in total claims during a given plan year. The stop-loss carrier would reimburse the employer for the $300,000 in excess of its cap.

Specific Stop Loss

Specific stop loss creates a cap on how much the employer will pay for any one individual’s claims. Specific stop loss insurance becomes very important when an insured individual incurs a big medical expense. Say an employee covered by a self-funded health insurance plan has a child diagnosed with leukemia. It’s one of the most expensive conditions to treat, holding the number two spot on the list of top high-cost claims in the most recent Sun Life Claims study. The average cost to treat leukemia was around $250,000 (using 2016-2019 data), with the highest claim costing $2.7 million. If the patient incurs $250,000 in claims and the employer’s specific stop-loss policy has a $100,000 deductible, the employer would pay the first $100,000 and the stop-loss policy would cover the next $150,000. The patient gets the treatment they need, while the employer’s healthcare fund isn’t decimated by a single high-cost claim. Win-win.

Denise DoyleStop Loss Insurance Brokers, Inc. is your source for information about all things related to self funding. We are here to answer questions you have about stop-loss provisions, switching from fully-funded to self-funded insurance, or whatever else you may be wondering about around health insurance plans. Contact us today!

Insights

Contact Block (Blog)

Recent Comments

    Newsletter Signup

    Signup to start receiving the latest newsletters from StopLoss right to your email.
    Stay up to date on insurance trends and insights.

    Back to Top

    In 2011, the top 5 most expensive medical conditions treated in US hospitals were: Septicemia, Osteoarthritis, Complication of device, implant or graft, Liveborn, and Acute myocardial infarction

    From 2010 to 2013, the number of claims that were individually $1 million or above rose by 1,000%

    In 2017 approximately 18% of the American public will purchase insurance through exchanges, radically transforming the health insurance landscape.

    In 2014, 98% of large firms (= 200 Workers) offer 1+ wellness programs to their employees.

    The most costly 1% of patients account for 20% of national health expenditures – accruing average annual expenses of nearly $90,000 per person.

    6% of firms offering fully-insured plans report they intend to self-insure because of Obamacare.

    In 2014, PPO plans remained the most common plan type, enrolling 58% of covered workers.

    In 2012, 93% of businesses with 5,000+ employees and 80% of companies with 1,000-4,999 employees were self-funded

    Massachusetts has the third-highest prevalence of self-funded insurance in the small-group market (Fewer than 50 employees).

    In 2013, the average deductible was $2,906 for individuals selecting plans from marketplaces. This compares with average deductibles of $1,135 for an individual with employer coverage.

    In 2013, the average annual premiums for employer-sponsored health insurance are $5,884 for single coverage and $16,351 for family coverage, up 5% and 4% respectively from 2012.

    From 2010 – 2013, cancer followed by chronic/end stage renal disease and leukemia accounted for the top 3 costliest illnesses.