As the landscape for healthcare coverage in the workplace continues to change, and more regulations occur, more employers are considering the move to a self-insured model instead of the traditional full-coverage model. Self-insuring healthcare for businesses used to be something that was used strictly by large corporations, but since the passing of the Affordable Care Act, that has drastically changed.
In addition to more flexibility of healthcare coverage and individual employee needs, the self-funding model also can save employers a significant amount of money that would otherwise have been paid to the insurance company. The employer also can better predict future healthcare costs through the self-insured model. However, with these benefits come some risks – and that is the fact that catastrophic claims can occur. Stop-Loss insurance, also known as excess insurance, helps to prevent these catastrophic claims by placing a cap on healthcare spending at a level that the employer chooses. Stop loss insurance reimburses employers for these catastrophic claims, adding a layer of protection to self-funded healthcare plans.
When employers make the decision to move to a self-funded model with stop-loss insurance, there are several questions that they tend to have. We’ll answer those questions here to try and help employers along in that decision making process.
Q. What are the Different Kinds of Stop Loss Insurance?
A: There are two main kinds of stop-loss, and those are aggregate and specific.
Aggregate Stop-Loss places a cap on the overall healthcare expenses an employer is responsible for, over the course of a contract period – typically yearly. The Stop-Loss provider reimburses the employer for aggregate claims after the contract period ends.
Specific Stop Loss refers to coverage that protects an employer against abnormally high claims coming from an individual employee. Also known as individual stop-loss, this type focus on one single claim that could exceed risk coverage, rather than that of an unusual frequency of total claims.
There are several different forms of both aggregate and specific stop-loss products that are available, depending on the services a stop loss provider offers. With the exception of very large corporations, most employers opt for some combination of both aggregate and specific stop-loss. For some business owners, specific stop-loss is adequate for their protection needs.
Q. How is the employer’s plan document defined?
A: The employer’s plan document outlines what benefits and plan options are available to employees. This document is essential when it comes to designating liability under the Stop-Loss coverage. The employer has many options available to them when designing their self-funded plan. As such, plan documents can vary widely depending on individual employers, and some components of the plan document might not be covered under the stop-loss plan. To put the covered portions of the plan document into action, the stop-loss underwriter must approve the entire document, and must also approve any changes to the plan document before they go into effect.
Q: How Do Underwriters Go About Writing Stop-Loss Coverage?
A: Typically, stop-loss coverage is written under a trust. With traditional group insurance, a policy is issued to the employer, but through a trust, the policyholder becomes the trustee. Once accepted into stop-loss insurance coverage, employers then become participants in the trust. Participation certificates are issued to each employer, and these certificates describe any benefits that the policy provides to the trustee. There are specific terms regularly used in relation to a trust:
- TRUST – is defined by the trust that stop-loss coverage provides to participating employers.
- TRUSTEE – is the financial institution that acts as a policyholder for stop-loss.
- POLICY – is the document that the trustee is issued.
- PARTICIPATING EMPLOYER – purchases stop-loss coverage through a trust.
- PARTICIPATION CERTIFICATE – is the document that is issued to a participating employer, containing much of the same information as the policy issued to the trustee.
Q: Who is eligible for coverage under stop-loss insurance?
A: Unlike traditional full coverage group healthcare and employee benefit insurance, stop-loss covers the employer only. The employer is responsible for developing coverage for their employees under their self-funded plan, as stop-loss does not cover or insure healthcare plan participants.
Q: How Do Underwriters Define Losses?
A: Employer expenses can be eligible for reimbursement under stop-loss if they meet these two criteria:
- The expense is covered under specific loss definition as laid out in the Stop-Loss policy.
- The expenses must be eligible and approved as a part of the Employer’s Benefit Plan.
Q: What Happens when Employees Discontinue Participation in Self-Funded Plans?
A: Depending on the employer, there are privileges often extended to employees who are qualified members that decide to leave group self-funded healthcare. Under the COBRA regulations, there are requirements that the employer must meet in order to extend coverage in certain circumstances. Two complementary coverage options can be offered to the employee – medical conversion or temporary medical. These plans don’t require that the employee provide proof of good health, but there are variables in coverage.
Medical Conversion is like that of a traditional insurance plan in that benefits are restricted and rates tend to be expensive. However, usually most existing conditions are covered under medical conversion.
Employees who believe they are healthy enough to remove themselves from group plans most often use Temporary Medical. Rates are significantly lower than medical conversion and benefits are more generous. However, any pre-existing conditions are no longer covered. Temporary Medical will only be available for a limited period of coverage.
Q. How are claims paid under stop-loss?
A: Stop-Loss insurance reimburses employers. Under a self-funded plan, employers assume risks and are responsible for covering the costs of all the losses under their self-funded plan, including those that exceed the deductible. Once the employer covers losses, the stop-loss underwriters reimburse the employer directly. Reimbursements are never paid to employees, service providers or suppliers.
With specific stop-loss, claims are typically processed once the employer meets the deductible. Aggregate stop-loss plans are most often process when the contract period ends. Employers can request monthly accommodations on aggregates, depending on their needs, which compares year-to-date claims to year-to-date aggregate deductibles, to see if there are payable amounts. The amount of claims usually stays the same.