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Stop Loss Coverage
How Stop Loss Coverage Works
Stop Loss is an insurance product that provides protection against catastrophic or unpredictable losses. It is purchased by employers who have decided to self-fund their employee benefit plans, but do not want to assume 100% of the liability for losses arising from the plans. Under a Stop Loss policy, the insurance company become liable for losses that exceed certain limits called deductibles.
A significant difference between Stop Loss and conventional employee benefit insurance is that Stop Loss insures only the employer. Stop Loss does not insure employees.
Stop Loss insurance is provided on a reimbursement basis. The employer is responsible for payment of all losses under a self-funded plan. With the purchase of Stop Loss coverage, the employer is still responsible for all losses including those that exceed the deductible. After the losses have been paid, the employer will be reimbursed the amount of the loss that exceeds the deductible. All reimbursements are paid directly to the employer, never to an employee or to a provider of services or supplies.
Stop Loss Comes in Two Forms: Specific and Aggregate.
Specific Stop Loss is the form of excess risk coverage that provides protection for the employer against a high claim individual. This protection is against abnormal severity of a single claim rather than abnormal frequency of claims in total. Specific Stop Loss is also known as Individual Stop Loss and usually only covers Medical and Prescriptions.
•Location Special Programs(Transplant, Neonatal, Dialysis)
•Industry Prescription Drug Coverage
•Age of Employees Third Party Administrator
•Gender Content Mental/Substance Abuse
•PPO Network Contract Type
•Managed Care Programs Prior Experience
•Aggregate Stop Loss provides a ceiling on the dollar amount of eligible expenses that an employer would pay, in total, during a contract period. The carrier reimburses the employer after the end of the contract period for Aggregate claims. Aggregate can cover other benefit types (dental, vision, STD).
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•Aggregate Stop Loss is a function of the group’s actual claims experience
•The future is highly predictable from past results
•The premium required to ensure this risk is relatively small compared to Specific
•Expected Claims + Margin = Aggregate Deductible (Attachment Point)
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•Generally, all but the largest employers will want to protect their plan with both Specific and Aggregate Stop Loss coverage. Occasionally, circumstances may be such that Specific Stop Loss by itself will fulfill the employer’s need for protection.
Concierge Helps Protect Your Risk.
How Stop Loss Coverage Works
Stop Loss Contract Types
Contracts with Run-In (15/12, 18/12, 24/12, or paid/12)Run-in refers to claims incurred prior to the effective date of the current stop-loss policy. If an employer’s plan has been self-insured for some time, there will be claims incurred at the end of a previous policy year but not yet paid due to a claims lag. Usually, the employer would like to have stop-loss insurance for those claims. Stop-loss policies with run-in are offered to cover claims incurred within a specified time period starting before the effective date of the current policy and running to the termination date of the current policy period. These same claims must be paid during the current policy period. The claim incurred period is usually 3, 6, or 12 months prior to the effective date of the current policy or in the case of a renewal, it can be the time period back to the original effective date of the first policy with the current stop-loss carrier.
Contracts with Run-Out (12/15, 12/18 or 12/24)Run-out refers to claims incurred with the current stop loss policy but not paid by the plan as of the termination date of the current stop loss policy. Stop loss carriers offer contracts that cover claims incurred within the timeframe of the current policy and paid in the time period between the effective date and the end of a specified number of months after the end of the current policy period, usually 3,6, or 12 months.
The Employer needs to have some level of risk tolerance. Even with Stop Loss protection, the employer group is still responsible for a layer of claims under the individual stop-loss deductible.
The employer's plan document defines the benefits offered to the employees and is critical in determining liability under the Stop Loss coverage. Because the employer has great latitude in designing the plan, there may be elements in the document that are not included under the Stop Loss coverage. The covered portions of the plan document must be approved by the underwriter in order to affect the Stop Loss coverage. Changes in the plan document after its initial approval must be approved before their inclusion in the Stop Loss coverage.