Stop Loss Insurance

If you are a business owner or a human resources professional, you know that managing employee benefits is an essential task. One option that is becoming increasingly popular among employers is stop loss insurance.

What is Stop Loss Insurance?

Stop loss insurance, also known as excess loss insurance or catastrophic coverage, is a type of insurance that provides protection to employers who self-fund their employee benefit plans. When a self-funded plan experiences a large claim, stop loss insurance kicks in to cover the expenses that exceed a certain threshold.

Stop loss insurance can provide a safety net for employers who may be hesitant to self-fund their employee benefit plans due to the potential financial risks involved.

How Does Stop Loss Insurance Work?

Stop loss insurance works by setting a specific threshold for claims. When claims exceed this threshold, the stop loss insurer begins paying out benefits. The threshold can be set on a per claim basis or an aggregate basis.

For example, let’s say a self-funded plan has a stop loss insurance policy with an aggregate deductible of $250,000. If the total claims for the year exceed $250,000, the stop loss insurer would begin paying out benefits.

Stop loss insurance can also be structured with a specific attachment point. This is the amount that the employer must pay out of pocket before the stop loss insurance kicks in.

Types of Stop Loss Insurance

There are two main types of stop loss insurance: specific stop loss and aggregate stop loss.

Specific Stop Loss

Specific stop loss insurance provides protection for individual claims that exceed a certain dollar amount. The dollar amount is determined by the employer when they purchase the policy.

For example, a self-funded plan may purchase a specific stop loss policy with a $100,000 attachment point. This means that any claim over $100,000 would be covered by the stop loss insurer.

Aggregate Stop Loss

Aggregate stop loss insurance provides protection for the total claims incurred by a self-funded plan over a certain period of time, typically a year.

For example, a self-funded plan may purchase an aggregate stop loss policy with a $1 million attachment point. If the total claims for the year exceed $1 million, the stop loss insurer would begin paying out benefits.

Benefits of Stop Loss Insurance

There are several benefits to purchasing stop loss insurance, including:

• Protection against catastrophic claims
• Greater flexibility in designing employee benefit plans
• Lower overall costs compared to traditional insurance plans

Frequently Asked Questions

Who needs stop loss insurance?

Stop loss insurance is typically purchased by self-funded plans, which are commonly used by larger employers.

How much does stop loss insurance cost?

The cost of stop loss insurance can vary depending on a variety of factors, including the size of the self-funded plan, the level of coverage desired, and the employer’s claims history.

What is the difference between specific and aggregate stop loss insurance?

Specific stop loss insurance provides protection for individual claims that exceed a certain dollar amount, while aggregate stop loss insurance provides protection for the total claims incurred by a self-funded plan over a certain period of time.

Is stop loss insurance necessary for self-funded plans?

While stop loss insurance is not required for self-funded plans, it can provide a valuable safety net for employers who are concerned about the financial risks associated with self-funding their employee benefit plans.

How can I purchase stop loss insurance?

Stop loss insurance can be purchased through a licensed insurance broker or directly from an insurance carrier.

Conclusion

Stop loss insurance can be a valuable tool for employers who self-fund their employee benefit plans. By providing protection against catastrophic claims, stop loss insurance can help employers manage the financial risks of self-funding while also providing greater flexibility in designing employee benefit plans. If you are considering self-funding your employee benefit plans, it is worth exploring the benefits of stop loss insurance.