What is Stop Loss Insurance?
Stop Loss is a financial safety mechanism that is purchased by self-funded employer health plans to protect against catastrophic or unpredictable high-cost claims. Stop loss is not health insurance for individual members but it is rather a risk protection for the plan itself. It works by reimbursing the plan sponsor (the employer) when the covered claim expenses exceed predetermined limits per the Stop Loss Contract. These predetermined limits are called Stop Loss Deductibles.
Types of Stop Loss Coverage
Specific Stop Loss
Definition: A type of stop loss coverage that protects the plan from large, individual claims on a single participant.
This coverage is activated when a single member’s claims exceed a predetermined specific deductible.
The plan is then reimbursed for eligible claims above the specific deductible on a per-member basis.
Example:
Specific Deductible: $50,000
Member’s total claim: $90,000
Reimbursement to the plan: $40,000
Aggregate Stop Loss
Definition: A type of stop loss that protects the plan from high overall claims in a given policy period.
Triggered when the total paid claims across all plan participants exceed the aggregate attachment point.
Includes an Attachment Point — a calculated percentage (most often 125%) of expected claims based on enrollment.
Example 1:
Attachment Point: $750,000
Total Claims: $350,000
Reimbursement to the Plan: $0
Example 2:
Attachment Point: $750,000
Total Claims: $800,000
Reimbursement to the Plan: $50,000
Spaggregate: The above two can be combined into a hybrid stop loss insurance product, which makes a single integrated contract, typically with only one premium.
Advance Funding
Definition: A type of stop loss coverage that allows the employer to receive reimbursement before the claim is even paid.
Helpful in cases where a high-dollar claim is pending and might impact cash flow if not paid. (This will be paid before the claim is adjudicated.)
Aggregate Accommodation
Definition: Provided when the monthly reimbursement exceeds a prorated year-to-date attachment point.
The claims must be funded by the plan first and then be eligible for reimbursement.
Helps the cash flow throughout the plan year.
Laser/No-Laser Stop Loss
Laser: A higher specific deductible that is mainly applicable to high-risk individuals.
No-laser policy: Guarantees that no individual will have a higher deductible, which often results in a higher premium rate.
This provides predictability while also reducing the financial risk of “lasered” members.
What is the Contract Basis / Contract Type?
Understanding the contract basis/contract type is vital when corking with stop loss. It defines what claims are eligible for reimbursement, based on when they were incurred and paid.
The contract basis defines two important things:
Incurred Date: when the medical service took place
Paid date: when the claim was actually paid by the Plan
The stop loss contract basis is what determines which combinations of incurred and paid dates qualify for reimbursement during the policy year.
Glossary of Terms
Term | Definition |
|---|---|
Specific Deductible | Dollar threshold per individual at which specific stop loss begins to pay. This stop loss protects the fund from a high-cost individual draining it. |
Aggregate Deductible | The total claims for all covered employees and dependents combined over a plan year. Aggregate stop-loss protects against too many claims overall (even if there isn’t a high-cost individual). |
Aggregate Attachment Point | Total dollar amount across all members. At this point, the aggregate stop-loss coverage will activate. |
Maximum Aggregate Benefit | This is the maximum that the aggregate stop-loss coverage will reimburse the self-funded health plan in a given policy year (after the attachment point has been met). |
Attachment Point | A threshold dollar amount that a self-funded health plan must pay in claims before the stop-loss insurance starts reimbursing. This is essentially a deductible for the employer. |
Laser | A higher deductible that is applied to one or more high risk plan members. The member may also be excluded from the Stop Loss policy. |
Run-In Claims | Claims incurred before the policy period but paid during it. |
Run-Out Claims | Claims incurred during the policy period but paid after it ends. |