Stop loss insurance, sometimes called re-insurance, is a product designed to protect employers and self-funded health plans from catastrophic loss.
There are two types of coverage: specific and aggregate.
Specific stop loss provides catastrophic protection to a self-funded plan. Only medical benefits or prescription drug claims may be covered. The employer chooses the specific stop loss deductible, which is the amount he or she is responsible for, per individual employee or dependent claim in the policy year.
More risk is often taken in the form of a higher specific stop loss deductible proportionate to the size of the group and the health plan budget.
For example, an employer with 500 employees may select a specific deductible ranging from $75,000-$125,000 per claim. A group of 300 employees may decide on a specific deductible of $50,000 per claim.
A reimbursement maximum is stated in the contract; the most common is $1 million, but higher limits are available. The premium is paid monthly.
Aggregate stop loss provides protection for an excessive amount of claim expenditures for the entire group for the policy year.
Coverage is based on a floating “aggregate attachment point.” To calculate this annually, the monthly enrollment is multiplied by a pre-established aggregate retention factor and totaled for each of the twelve months in the policy year. The aggregate retention factor is usually established at 125 percent of expected claims. It is influenced by:
- The claim and/or premium experience of the group.
- Expected medical costs in that geographic area.
- The contract terms.
- A medical trend component.
The aggregate premium is paid annually, in advance.
For more information about the types of stop loss contracts, see the stop loss contracts page.