As a self-insured employer, you know that self-funded healthcare plans come with benefits and risks. How can stop loss insurance protect your business, and do you really need it? What types of companies take out stop loss insurance? Is there contract terminology associated with medical stop loss? Read on if you’re still on the fence about adding a stop-loss policy to your self-funded healthcare plan to help answer any questions.
What is Stop Loss Insurance?
If you are an employer with self-funded insurance or have ever considered self-funding for your business, you’ve probably wondered what exactly is medical stop loss, and what are some of the specifics of it.
Medical stop loss insurance, which is also referred to as excess insurance, is a service that protects employers from unpredictable, abnormally high claims and helps minimize losses. Stop Loss insurance can offer peace of mind for an employer, as it will reduce liability for losses associated with self-funded business insurance plans. Instead, stop-loss service provider assumes that liability. There are caps placed on the amount of liability a stop loss underwriter will assume, known as deductibles.
Self-funded insurance plans are generally offered to employers – specific stop loss and aggregate stop loss. Specific stop loss coverage, also known as individual stop loss, is a protective service designed to address a potential single catastrophic claim of an individual employee, rather than address a high volume of claims.
How Does Stop-Loss Insurance Work?
Medical stop loss health insurance helps businesses by adding an extra protective barrier against abnormally high claims. Because catastrophic claims are inevitable and unpredictable, stop-loss insurance puts a cap on employee healthcare costs, specifically their medical bills. As the employer, you decide what that figure is, depending of course on the size of your organization, the needs of your individual employees, and so on.
What Type of Companies Take Out Stop-Loss Insurance?
For many years, it used to be that only large companies with hundreds of employees would choose to self-insure. But that is simply no longer the case nowadays, due to drastic changes in healthcare regulations and other factors. Full coverage plans from corporations are becoming increasingly outdated and expensive. Because of this, an increasing number of employers are opting out of traditional business healthcare plans in favor of self-insuring. In fact, small businesses now make up around 20 percent of all organizations that choose self-funding. As healthcare needs for businesses evolve, so does the need for more options. Before making a decision on a specific plan, it is important to understand what kind of stop-loss coverage options you have available to you.
What is Aggregate Stop-Loss Insurance?
Aggregate Stop-Loss is a policy that sets a specific amount for liabilities, or claim coverage in order to balance the budget of a self-funded health insurance policy. The stop loss underwriter and the employer agree on an aggregate amount, and if the amount spend on claims is more than that amount, the stop loss provider reimburses the employer.
With full coverage insurance policies, the employer agrees to a fixed-price premium with the carrier. With self-funded plans, the employer assumes all liability for each claim. Each case is addressed individually, but some catastrophic claims exceed budget amounts dedicated to employee benefits. This is where stop loss insurance can help add a layer of protection to a business.
Stop-loss insurance policies are available either separately or as an add-on to any current healthcare plan an employer has.
What Kind of Stop-Loss Coverage is Available?
Generally speaking, medical stop-loss insurance comes in one of two distinct types – aggregate and specific. Both forms come with advantages based on the needs of each organization.
Aggregate Stop-Loss designates a specific dollar figure that would ultimately be the responsibility of the employer within a contract period or timeframe. The frequency of unusually high claims depends on the employer and their employees. When the contract period is over, the medical stop loss carriers then reimburses the funds the employer has paid out on aggregate claims.
Specific Stop-Loss is generally useful for employers that have specific employees who present the risk of making abnormally high claims. Specific stop loss also referred to individual stop loss, is usually helpful for smaller businesses that have a higher likelihood of predicting the healthcare needs of one or two individuals.
Naturally, these two types of stop-loss insurance are just the tip of the iceberg. There are of course, many options that come with both of these forms of stop loss insurance. Currently, it is most common for employers to decide to add both aggregate and individual stop-loss coverage. However, certain employers will get their needs met by just adding individual coverage.
Do You Really Need Stop-Loss Insurance?
Each business is different and presents specific risks from every employee. Whether you really need stop loss insurance for your business depends on your specific situation. For instance, if you know that an employee suffers from a debilitating disease, you might decide that a specific stop-loss plan is the best for your business. In other cases, such as workplace dangers or noticeably higher than average employees coming down with colds, you might decide that aggregate stop-loss coverage is best for you.
Stop-Loss Insurance Terminology
Stop-loss insurance policies and contracts are typically written under trusts. With traditional full-coverage group plans, the employers are the ones considered as the policyholder. Under a trust, the bank or financial institution becomes the policyholder. The trust is the written contract between the bank and the employer. Employers who decide to purchase stop-loss insurance under the written terms of the trust are called the participating employer. When all parties come to an agreement and sign the contract, the employer is issued a participation certificate. The certificate acts as a sort of binding document.
Why Invest in a Stop-Loss Insurance Policy?
Most businesses and organizations don’t have the liquid funds available to cover unforeseen claims that are higher than usual. Medical stop loss-polices provide a layer of protection that can give you peace of mind because illnesses and accidents are a fact of life.
Transparent and Trustworthy
When looking for the medical stop-loss policy that’s right for your organization, you need a provider that you can trust to answer your questions and not hit you with additional fees. If you have any further questions or concerns about how a medical-stop loss policy is a solid investment for your business, don’t hesitate to contact us. At Prodigy, we take pride in our transparency as underwriters. It is our goal for our clients to fully understand every aspect of their stop-loss insurance plans.