Top 5 Ways Stop Loss Insurance Helps Self-insured Employers

Employers are clear about the fact that they need to control healthcare costs. They often aren’t as clear about the strategies they can use to do that, in a way that benefits both the organization and its employees. Self-funding a health plan is an increasingly popular choice among businesses of all sizes, but business leaders might be wary about the financial risk of taking direct responsibility for paying employees’ claims. The purpose of stop loss insurance is to mitigate that risk. Stop loss insurance serves a number of important purposes for self-insured employers—here are five of the biggest. 

1. Stop loss insurance helps a self-insured employer protect its financial future. Switching from fully-funded insurance to self-funded insurance presents both financial benefits and risks. Instead of paying premiums to a health insurance carrier, a self-insured employer maintains a fund that it uses to pay for employees’ real claims. If claims are lower than anticipated, this works to the employer’s advantage. 

But higher-than-anticipated claims could drain the healthcare fund too quickly, challenging the employer’s ability to cover future costs. Now money has to be pulled from other places to replenish the employer’s healthcare fund. By setting a cap on what a self-insured employer is obligated to pay for high-cost claims, stop loss insurance helps the employer keep all of its money in the right places.  

2. Stop loss insurance helps self-insured employers budget for healthcare costs. Without stop loss insurance, a self-insured employer has no way to accurately project its future healthcare costs. Past data might tell you to expect annual claims of $X, but it’s obviously impossible to predict exactly what kinds of health events will affect employees in the future.

Because stop loss insurance puts a clearly defined cap on what a self-insured employer will pay for covered care, having stop loss makes it easier for the employer to budget for its future healthcare costs. Sure, claims might still be higher than $X, but an employer with stop loss insurance can at least know that its healthcare costs won’t be above $Y. 

3. Aggregate stop loss and specific stop loss insurance create two distinct layers of protection. Self-insured employers have to consider two distinct areas of financial concern. One, that overall claims in a given plan year will be higher than anticipated. Two, that one or more covered individuals will have catastrophic claims. 

For example, what if another global health crisis strikes, making a lot of employees very sick and raising the organization’s overall claims by 20 or 30 percent above its projections? Or, what if overall claims are low during a given plan year, but multiple employees are diagnosed with complex medical issues and incur claims above $1 million?

Because both overall group claims and individual high-cost claims can drain a self-insured employer’s healthcare fund, these employers typically take advantage of both aggregate and specific stop loss insurance. Aggregate stop loss caps the employer’s overall healthcare costs. Specific stop loss caps the employer’s obligation to any one individual’s claims. Having both types gives employers maximum protection against unpredictable future high-cost claims.

4. A comprehensive health plan, including stop loss insurance, is critical for employee satisfaction and retention. Most employees will probably never think about the quality of their employer’s stop loss insurance policy, or even know that they’re covered in part by stop loss insurance. But they’ll absolutely pay attention to the overall quality of their employer-provided health benefits. If you want to retain top employees to stay with you, and to appeal to prospective employees, it helps to have a proven record of providing high-quality health benefits. Using stop loss insurance as part of your business’s healthcare funding strategy lets you build that impressive record. 

5. The flexibility of options available around stop loss insurance allows employers to customize their self-funded plans to meet their needs. In addition to the potential financial benefits associated with self-funding, the freedom of choice makes this an attractive strategy for a lot of businesses. Self-insured employers have some measure of control over what services they cover and how much they pay for those services. They can tailor the benefits to their specific employee group rather than being stuck with a health insurance plan created by an insurance company. Self-insured employers also have a lot of choice around how they design their stop loss insurance policy. It’s up to the individual employer to decide how they want to use stop loss coverage as part of their self-funded health plan. 

Stop Loss Insurance, Inc. is here to demystify stop loss insurance. If you’re not sure if or how stop loss could benefit your self-insured organization, don’t waste time wondering—get in touch so we can discuss specifics. 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.