Pros and Cons of Pooled Stop-Loss Insurance

Options: they’re both a blessing and a curse. The stakes are low when you’re trying to pick a restaurant for dinner, but the choices you make about health insurance have massive consequences for your organization and its employees. That’s why it’s essential to carefully weigh the pros and cons of pooled stop-loss insurance before committing to a policy. Joining forces with other plan sponsors makes sound financial sense for some organizations, but isn’t prudent for others.

Pro: leverage for discounts

If your organization has only a few dozen employees, joining a pool that includes hundreds of employees generally means you’ll get better rates. The plan administrator will leverage the size of the pool to get discounts from insurance carriers, which aren’t available to smaller groups.

Con: additional risk

Depending on how your stop-loss policy is set up, you may have to take on the risks of the other members of the pool. If you’re pooled with high-risk individuals who incur high claims, your costs will increase in coming years, even if your employees don’t incur any major claims. Of course, if it’s your employees who are the high-risk claimants in the pool, sharing the costs across the pool may actually turn out to be a pro for your organization.

Pro: premiums should rise steadily

Although joining a stop-loss pool won’t protect you from rising premiums, it should protect you from sudden, steep jumps in price. Depending on the policy, you may be able to plan for your premium to increase a predictable amount each year, which is hugely beneficial when you’re projecting future costs. Premium increases may even be capped for the first several years of coverage.

Con: multi-year agreement

A pooled insurance plan may lock you into a multi-year agreement, which can be problematic if you realize during the first year that the policy doesn’t suit your needs after all.

 Pro: more options overall

Joining a pool gives you access to more carriers, plans and benefits than you would be eligible to access as a single plan sponsor. That’s especially true for smaller organizations. Getting coverage as part of a large group often means getting access to more varied and customizable options than you might be able to enjoy as a small group.

Con: less control overall

Pooling your stop-loss insurance requires you to cede some level of control to the group. Yours will be just one voice in the crowd, so you may end up having to accept some terms that you don’t like.

Pro: less work for you

When you’re responsible for choosing, enrolling in and renewing your own stop-loss policy, dealing with the paperwork and ironing out all the details can take hours and hours. You (or whoever your organization puts in charge of insurance issues) must partner with the plan administrator to build the plan from scratch. Going from an individual stop-loss policy to a pooled one is a little like going from organizing a conference to being a member of the organizing committee. You still get to be involved in making decisions, but not everything rests on your shoulders.