Understanding Stop-Loss Insurance

Understanding Stop-Loss Insurance

July 11, 2022

Adopting a stop-loss insurance policy is common for employers who offer their employees a group health plan.  

Having a group health plan is important for business growth.  Employees are the heart and soul of the business.  If they’re not healthy, capable, reliable, and dedicated, how can your business flourish?  To attract these types of people, your business should offer attractions, one of these being a group health insurance plan.  

There are three types of group health insurance: self-funded, fully-insured, and level-funded.  You can read more about the three types here.  With a self-funded plan, stop-loss coverage is particularly important.  Here especially, it can play a part and help your business absorb any potential losses.  

See a self-funded plan with stop-loss insurance in action.

What is Stop-Loss Insurance? 

In essence, stop-loss coverage is an extra layer of insurance that you would buy to protect your business from paying any healthcare costs that exceed the covered expenses under a self-funded plan.  

Let’s say your health insurance plan insures each of your employees for $25,000 worth of claims.  One day, one of your employees suddenly suffers a medical emergency, and he goes to the hospital and gets his gallbladder removed.  This surgery greatly exceeds the $25,000 maximum.  What happens then?  

That’s what stop-loss insurance is there for.

Without stop-loss, your business would have to pay the entire amount of his emergency surgery costs.  

Alongside this protection from huge claims, stop-loss coverage can protect from large fluctuations in premiums per year.  

Types of Stop-Loss Insurance

There are two types of stop-loss insurance.  

The first is individual stop-loss insurance, also called specific, that covers excessive claims per person.  This means that each employee has a pre-set amount of money that you can spend for their needs.  After the amount is used up, you would not be liable to pay for costs beyond that predetermined amount, and the stop-loss policy would cover the rest.  

The second type of plan is called aggregate stop-loss insurance.  This covers claims for an entire group added together.  Like the individual plan, the plan has a predetermined amount of money that you can spend per group.  After this cumulative amount is used, you would not be liable to pay for costs beyond that, and the stop-loss policy would cover the rest. 

How do you choose which type you need?

It’s common for smaller businesses with fewer employees to purchase both types at first, then after a few years, you gain a better understanding of the average costs of claims.  With this information, you can adjust healthcare and stop-loss coverages.  

We’re happy to answer your questions.  Contact us today to learn more about self-funded health plans, stop-loss, and anything else you may need to gain a complete understanding of your healthcare costs.