Stop-loss insurance allows employers to enjoy the flexibility of self-funded health plans while safeguarding their financial future. Once claims exceed an aggregate attachment point – usually 125% of expected medical claims over an entire year – an insurer reimburses employers according to an established threshold or aggregate attachment point and reimburses accordingly.
Aggregate stop loss could be beneficial if only one employee incurs large claims each year; however, specific stop loss might be more suitable for small businesses with frequent high-dollar claims.
What is a Stop Loss Limit?
Stop-loss insurance is an ancillary benefit companies can adopt to protect against large medical claims. While it does not cover individual employees directly, stop-loss can reduce how much money has to come out of pocket before an insurer reimburses costs incurred by an organization. It is often purchased by employers who self-fund employee health benefits plans in order to shield themselves financially against large claims that arise over time.
Stop-loss policies include two components that make up its architecture: attachment points for participants and an aggregate claim deductible. An attachment point represents how much participants must cover out of pocket before receiving coverage from their insurance provider; an aggregate claim deductible represents all participants’ aggregate claims over and above attachment point during that policy year; various stop loss policies offer different combinations of these components, but all have an attachment point and aggregate claim deductible as part of its framework.
An employer that sets their stop-loss limit at $50,000 per person would set this specific stop-loss limit, meaning employees must cover expenses up to this threshold before receiving reimbursement from their insurance carrier. Employers should take note of this limit because if employees exceed it they won’t receive reimbursement from them.
Stop-loss limits also assist employers in understanding and projecting their overall health care costs, helping to determine their financial risk as well as create more suitable benefit plans in future years.
Stopping loss offers companies access to data about employee medical claims they would otherwise lack access to, giving them insight into identifying trends and making necessary adjustments. It may also enable them to negotiate better terms with their insurance carrier for more competitive pricing on health care benefits.
Many companies have discovered that with lower premiums and greater data available with stop-loss policies, they have been able to significantly cut health care benefit costs, sometimes by as much as 40% compared to traditional policies.
What is an Aggregate Attachment Threshold?
An aggregate attachment threshold is the amount that will be reimbursed once total medical, dental, vision, prescription drug and short-term disability claims exceed a set number for all plan participants. A higher aggregate attachment threshold provides greater protection from large losses, such as when multiple employees incur large health care expenses due to illness or accidents.
Employers typically choose an aggregate attachment threshold of approximately $500,000 and an aggregate claims limit of at least $1 million, depending on their level of risk. When selecting this threshold, it’s essential to take your group size and average cost per person into consideration; an experienced broker can assist with finding coverage tailored specifically to your group size and risk profile.
Employers should carefully assess the financial stability and reputation of potential insurers before choosing one, taking into account policy flexibility and comprehensiveness coverage. They should then choose either aggregate or individual stop loss insurance to best meet their needs; and assess what amount they’ll need for coverage.
Self-funded plans must include a stop-loss policy as an extra safeguard to protect themselves against large and unexpected claims by individual participants, while simultaneously helping employees benefit from more consistent payroll deductions year-after-year, which creates a better employee experience with their benefits program.
At the end of each year, your stop loss carrier calculates and bills you for any difference between expected and actual claims incurred during that year – or credits it back depending on your plan selection and contract details.
An aggregate stop loss policy provides your group with protection from large individual medical claims by covering them up until your aggregate attachment threshold or maximum claims liability limit is met – making this an excellent solution for most groups.
What is a Specific Attachment Threshold?
Specific attachment thresholds (SATs) are limits placed on individual claims by employee. They can be added to aggregate stop loss coverage or purchased separately and serve to limit your financial liability in cases where high-cost individual claims arise, such as car accidents requiring surgery and physical therapy. Should these costs surpass your specific attachment point threshold of $100,000 per claim before insurance kicks in. It’s therefore wise to carefully read your policy’s terms and conditions so you know what services are covered or not covered.
As is evident, it can be challenging to accurately estimate the total costs associated with employee healthcare expenses. To reduce risk and mitigate expenses, many employers opt to self-fund their benefits – this allows them to avoid rising group health plan premiums while simultaneously protecting them against potentially large medical claims from individual members.
Self-funded plans offer significant cost-cutting potential, yet come with their own risks. Unexpected medical costs can quickly drain your budget and impact how efficiently your business runs; that is why stop-loss insurance should always be an integral component of a self-funded plan.
Stop-loss carriers use expected claim liabilities of your entire employee population (aggregate), usually calculated using your prior year experience, multiplied by a risk corridor percentage, typically between 125%-150% of anticipated total claims, to ascertain your company’s level of exposure.
Once they know your aggregate claim liability, stop-loss carriers will determine an aggregate attachment point or threshold to estimate how many claims could arise during any given year, including medical, dental, vision and prescription drug expenses.
Once your aggregate claim liability and threshold have been identified, your stop-loss carrier can reimburse you if claims for employees exceed them – protecting against catastrophic losses which would otherwise be unrecoverable from personal funds alone.
What is a Monthly Deductible Limit?
Many companies are opting out of traditional health insurance plans in favor of self-insuring to cover employee medical costs. Although this approach can reduce costs significantly, this leaves the company exposed if many of its employees fall ill at once. To limit their exposure further, stop loss insurance policies are an affordable option available to companies.
Stop loss insurance is an essential form of coverage for employers self-insuring themselves against catastrophic losses, providing protection for self-funded healthcare plans from catastrophic claims. Purchased separately from regular health coverage, stop loss policies typically reimburse when employee claims surpass an agreed upon threshold or aggregate attachment point; these policies typically come with maximum liability amounts between $10,000 to $1 Million per person outlined within their contract terms.
A monthly aggregation threshold can be determined by multiplying the average expected monthly claims of your employees by an aggregation threshold percentage, typically 125% to 175%. Once this has been done, both you and your stop-loss carrier can determine an aggregate attachment point for the year – this figure represents the maximum dollar amount your employer will owe for all participants enrolled during that particular policy year and this number may change as employee enrollment fluctuates.
Some companies elect to add an individual, or specific, stop loss deductible in addition to an aggregate deductible. Doing so can help avoid fluctuations in employee yearly deductible amounts while coming at an added expense; many organizations utilize health analytics platforms as an indicator for how much the additional specific stop loss deductible might cost them.
