Since the Affordable Care Act (ACA) was passed, employers have been exploring their options for providing healthcare for their employees. Changes and innovations in the pharmaceutical industry as well as in the medical field have led to healthcare claims that are higher than average and in some cases, catastrophic. Employers need better ways to mitigate risk and reduce that risk. There is where stop-loss insurance can help.
For most employers, self-funded plans are attractive because they offer significant savings over traditional, fully covered insurance from major providers. For one thing, taxes are more expensive with premium carrier plans. Additionally, self-funded plans also offer more flexibility. The potential downside is that self-funding comes with a lot more risk than traditional plans when it comes to paying out catastrophic claims. Most employers decide to buy stop-loss insurance in order to reduce this risk.
There are two main types of stop-loss insurance: individual or aggregate. Individual, or specific stop loss, place a cap for each individual that participates in the healthcare plan over the course of a specific policy period. If an individual makes a claim that is higher than the set amount, the difference is covered by the stop-loss provider. Aggregate stop loss is the type that puts a layer of protection over the entire claim liability. The stop-loss carrier will reimburse the employer if the total amount exceeds a specific figure over the course of a policy period. Most employers opt to purchase a combination of both individual or aggregate stop-loss insurance. The individual needs of most self-insured employers will depend on the size of their workforce and the specific health and needs of their employees.
The aggregate limit is increasing, due mostly to rising costs of specific prescription drugs. There are two main types of catastrophic claims – organ transplants, accidents and disease-related treatment like cancers. The other, less common catastrophic claim is specific drugs that treat hereditary conditions. Some of these catastrophic claims can be up to $1 million, but some of them are now even more than that in some cases. Back in 2014, there was a measure passed that removed annual and lifetime limits. Employers were able to set a maximum limit on benefits that would be paid, with the remaining amounts becoming the responsibility of the plan participant. Since these limits were removed in 2014, this has caused a large amount of risk to be placed back on the employer for large types of catastrophic claims. High and unexpected claims can completely drain an employer’s healthcare fund if they aren’t careful. This is another reason why stop-loss insurance is a crucial purchase for most self-funded plan owners.
As stop-loss insurance continues to evolve, we will see more innovations in the industry such as options for catastrophic claims instead of employers putting lasers on long-tail stop-loss claims. Instead of the employer no longer covering the lasered employee, there could be some innovations such as options available to both employee and employer.