What You Need to Know About Stop Loss Insurance

Fifty-five percent of plan sponsors surveyed reported having at least one plan participant with claims that exceeded $500,000 in the last two policy years. Twenty-three percent reported a claimant in excess of $1 million, with 9 percent of those in excess of $1.5 million. (Source: 2014 Aegis Risk Medical Stop Loss Premium Survey).

Stop loss insurance, a type of reinsurance, protects self-insured employers by limiting the amount they have to pay out for employee health claims. Two types of stop loss coverage exist: one covers risks on an individual participant level; the other covers them on the group level.

Individual stop loss, or specific deductible stop loss protects you from large claims from an individual. If an individual’s claims reach a specific dollar amount, the reinsurer will pay that person’s claims for the rest of the plan year.

Aggregate stop loss limits the employers’ liability for the entire group to a specified dollar amount during a specified period, usually either a plan year or month. If your claims reach the “attachment point,” the reinsurer will pay claims over that amount. More employers buy specific stop loss coverage, since it protects them from unforeseen high-dollar medical claims on an individual.

Unlike other types of policies, where the insurer specifies deductible levels, stop loss insurers allow the insured to select a loss limit, or attachment point, based on its budget. Attachment amounts typically range from 15 to 25 percent above expected claims.

How Much Does It Cost?

Stop loss premiums vary widely due to varying deductible size. Aegis found that premiums in 2014 averaged from $102.52 per employee per month (PEPM) for a $100,000 individual deductible to $13.43 PEPM for a $500,000 individual deductible.

Note that a stop-loss policy is a contract between the carrier and the employer, not a health policy. This means the pre-existing condition and guaranteed renewability requirements that apply to health insurers do not apply to stop-loss insurers. Stop-loss insurers can refuse coverage or drop coverage if a group experiences too many claims. Current Affordable Care Act regulations would allow a group to go back to a fully insured arrangement should this happen.