The 5 Least Understood Benefits of Stop Loss Insurance

As self-funded health plans have steadily grown in popularity over the last decade, many business leaders have found themselves in unfamiliar territory. After switching from fully-funded insurance to self-funding, there’s a great deal of information to absorb. Stop loss insurance is one tool that self-insured employers may utilize but not fully understand. Its central purpose is clear; stop loss puts a cap on an employer’s liability for employees’ high-cost health claims, so the stop loss carrier covers losses above a certain threshold. The benefits of stop loss aren’t always so clear. But allowing self-insured employers to cap their healthcare spending is one of the main benefits of stop loss. 

Employers who are new to self-funding should know about the more nuanced advantages. These include: 

  • The two layers of protection afforded by aggregate and specific stop loss. There’s an important distinction between the two types of stop loss insurance, and having both types of coverage allows employers to get maximum protection from losses. Aggregate stop loss caps the employer’s overall liability for all eligible claims during a given contract period. The stop loss policy establishes an attachment point that’s based on the employer’s projected claims, which is essentially its deductible. The stop loss carrier agrees to cover claims above the attachment point. Aggregate stop loss coverage benefits self-insured employers by helping them budget for unpredictable costs. Hopefully your overall claims won’t be high enough that you even need to use your aggregate stop loss to cover losses… but if you do have high claims, at least you know that you won’t be on the hook for all of them. Specific stop loss, or individual stop loss, caps the employer’s liability for one individual’s high-cost claims. This coverage is critical because if even one employee is diagnosed with cancer or has a baby born with birth defects, their medical expenses could easily surpass $1 million per year. Those individual high-cost claims can drain the employer’s health care fund without specific stop loss in place. The flexibility in coverage is just one of the benefits of stop loss.
  • Lasering. Self-insured employers can suffer major financial losses if even one employee experiences a catastrophically high claim. Stop loss coverage is designed to cap the risk, but even one or two high-cost claims can drive up stop loss premiums for the entire covered group at renewal time. Lasering is a stop loss practice that allows a self-insured employer to assign a higher specific deductible to individuals who have historically had high claims and/or are expected to have high claims in the future. The employer may end up spending more of its own health care fund on that individual’s claims before stop loss kicks in. But in the long run, lasering can provide savings by controlling an employer’s stop loss premiums. 
  • Reimbursement. Stop loss insurance uses a reimbursement model. The self-insured employer pays its covered individuals’ claims upfront. At the end of the contract period, the stop loss carrier reimburses the insurer for all eligible losses above its attachment point. While this model can create cash-flow issues, there are strategies that can be deployed to help employers be reimbursed quickly—and the influx of money when you’re reimbursed creates some nice breathing room.
  • The role of the TPA and broker. Switching from fully-funded insurance to a self-funded plan is a big transition, and employers might be cautious about losing the kind of customer support that major insurers provide. Having the flexibility to create your own plan is great, but how do you know if you’re making the right choices? Employers need to know that switching to self-funding doesn’t mean you’re on your own to create and administer your plan. An experienced third-party administrator can provide a full range of ongoing support services including plan development, employee onboarding and claims processing. Your insurance broker should also be a valuable resource as you navigate self-funding and stop-loss and have questions you need answered.
  • How stop loss captives work. Stop loss captives are a risk management tool that allow small- or medium-sized employers with self-funded plans to band together and minimize their individual risk and losses. In a stop loss captive, a group of self-insured employers are all free to manage their own plans independently but they all contribute to a shared pool of funds. If an employer in the group has claims exceeding its captive deductible, the shared captive fund covers those costs. If money is left in the pool at the end of the year, it’s paid out to the captive members. This model allows self-insured employers to maintain autonomy over their own health plans, while sharing the financial risks of self-funding with similar employers. 

Stop Loss Insurance Brokers, Inc. recognizes that employers urgently need solutions that allow them to control their healthcare spending and losses. Stop loss coverage may be one of those solutions—even if you don’t understand entirely how it works. There are more benefits of stop loss insurance beyond the few mentioned here. I’m here to answer any questions you have. Contact me today.

Denise Doyle

Stop 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!

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    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.