Tens of thousands of employers have done it, likely saving billions of dollars in the process.
We’re talking about going the self-insurance route for their group healthcare benefits, or self-funding as it’s also known.
Rather than paying a fixed premium to a traditional insurance company, these companies pay the expense of healthcare as those costs are incurred.
But how do they do it? Doesn’t that expose them to potentially crippling bills? Healthcare costs have been rising faster than overall inflation for years. What right-minded CEO, CFO, COO or CHRO would leave their company’s finances so vulnerable?
None, of course. And none need to, thanks to stop-loss insurance, which, simply stated, protects self-insured employers from catastrophic losses, putting a cap on how much they pay for their employees’ health care in any given year.
Because more companies than ever are now stepping off the traditional healthcare insurance path and finally getting serious about alternative risk transfer strategies, we’ve compiled the following answers to some frequently asked questions about stop-loss coverage.
We know, of course, that some employers are hesitant to switch to a self-funded health plan because they believe it is too complex or risky. However, the truth is that self-funded plans can offer significant benefits for both employers and employees, and with the right support and guidance, they can be a smart and strategic choice.
Question: What exactly is stop-loss insurance?
Answer: Stop-loss insurance (also known as excess insurance) is a product that provides protection for self-insured employers by serving as a reimbursement mechanism for catastrophic claims exceeding pre-determined levels. The "stop-loss level" is typically set by the employer and can be based on the number of employees or the overall cost of healthcare claims.
Q: Who is insured?
A: 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, or health plan participants as they’re known in the employee benefits world.
Q: What stop-loss coverages are available?
A: 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 on any one individual. This is protection 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.
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.
A number of variations are available for each of these two products.
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.
Q: When are stop-loss insurance claims paid?
A: Stop-loss insurance claims are typically reimbursed at the time claims are paid, as long as the employer establishes an “advance funding” arrangement with the carrier. All reimbursements are paid directly to the employer, never to an employee or to a provider of services or supplies.
Q: Is stop-loss insurance right for your company?
If you’re wanting to flip into a self-insured plan, absolutely. The only reason to go without it is if you’ve got money to burn. Whether you go the self-funding route depends on a few, key variables. Companies with lots of young, healthy, and largely unmarried employees may want to stick with a traditional group health plan. But people age, they get married, have children, and they get sick. As health claims mount and premiums rise, self-funding with a stop-loss policy may quickly become the more sensible way to go.
Q: How do I determine the appropriate stop-loss level for my business?
A: The appropriate stop-loss level depends on a variety of factors, including the size of your business, the overall health of your workforce, and the cost of healthcare in your area. It's important to work with a trusted insurance broker or consultant who can help you determine the best stop-loss level for your specific needs.
Q: Is stop-loss insurance expensive?
A: The cost of stop-loss insurance varies depending on a number of factors, including the size of your business, the level of coverage you need, and the health of your workforce. However, many employers find that the cost of stop-loss insurance is more affordable than the financial risks associated with high-cost healthcare claims.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the nation. For more information about stop-loss insurance coverage, contact us online or call 480-730-4920.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.