Financial insurance for self-funded employers against catastrophic losses in employee health claims.
Through stop-loss, a carrier will provide reimbursement for any excess claims that surpass an predetermined, agreed-upon amount. The two main forms of stop-loss coverage are:
- Specific stop-loss products, which protect against catastrophic claims from individual employees
- Aggregate stop-loss products, which protect against high overall claims.
Often, employers will purchase both specific and aggregate coverage together, in order to ensure maximum protection against highly unpredictable health claims. It is also possible to purchase either one or the other, a choice that depends upon one’s workforce health trends and demographics.
Stop-loss coverage is an indemnity policy, meaning that claims are reimbursed by the stop-loss carrier rather than paid immediately. In other words, since these employers are self-funded, they will have to finance the claims prior to reimbursement. Reimbursement typically occurs once the maximum individual liability (“deductible”) is reached. For aggregate stop-loss policies, reimbursement is often paid at the end of the policy year.
Advance funding is an add-on option which requires the stop-loss insurer to pay for claims immediately once the maximum is reached, rather than reimburse later on. It is available for both specific and aggregate stop-loss policies. Several other provisions exist that can be built into a stop-loss policy, such as terminal liability, whereby claims are covered for a period following an employer’s termination of a stop-loss policy.
The stop-loss insurance market differs from the traditional health-insurance market in that it is not subject to ACA or state mandates. This means that carriers may try to reduce their own risk by “lasering” out specific high-risk individuals or benefits from being covered under a proposed plan.