What is total stop-loss insurance?
Global stop-loss insurance is a policy designed to limit the coverage (losses) of damages to a certain amount. This coverage ensures that a catastrophic loss (specific stop-loss) or numerous damages (aggregate stop-loss) does not exhaust the financial reserves of a self-financed plan. The added stop-loss protects the employer against claims that are higher than expected. If the total damages exceed the total limit, the loss limit insurer covers the damages or reimburses the employer.
Key Recommendations
Global stop-loss insurance is designed to protect an employer who self-funds an employee health plan with a higher-than-anticipated damage payout.
Stop-loss insurance is similar to high-deductible insurance, and the employer remains liable for damages below the deductible amount.
The deductibility or garnishment for total loss limit insurance is calculated based on several factors, including the estimated amount of damage per month, the number of employees enrolled, and a loss limit multiplier, which is typically around 125% of anticipated damages.
Understanding global stop-loss insurance
Global loss limit insurance is maintained for self-funded insurance plans in which an employer bears the financial risk of providing health benefits to their employees. In practical terms, self-funded employers pay for each claim as it is filed, rather than paying a flat premium to an insurance company for a fully insured plan. Stop-loss insurance is similar to buying high-deductible insurance. The employer remains responsible for the costs of the claim up to the amount of the deductible.
Stop-loss insurance differs from conventional employee benefits insurance. Stop-loss only covers the employer and does not provide direct coverage to employees and health plan participants.
How Total Loss Limit Insurance Is Used
Employers use comprehensive loss limit insurance as protection against a large amount of damage. Global stop-loss insurance comes with a maximum level for damages. When a maximum threshold is exceeded, the employer no longer needs to make payments and may receive some reimbursements.
Global stop-loss insurance can be added to an existing insurance plan or purchased separately. The threshold is calculated based on a certain percentage of projected costs (called connection points), usually 125% of anticipated applications for the year.
An aggregate stop-loss threshold is usually variable and not fixed. This is because the threshold fluctuates as a percentage of an employer’s registered employees. The variable threshold is based on an aggregate attachment factor which is an important component in calculating a stop-loss level.
As with high deductibility plans, most stop loss plans will have relatively low premiums. This is because the employer is expected to cover more than 100% of the amount of accounts receivable it receives.
According to the 2018 Henry J. Kaiser Family Foundation Employer Health Benefits Survey, insurers now offer health plans with a self-funding option for small and midsize employers; these health plans include stop-loss insurance with low connection points.
Aggregate stop-loss insurance calculations
The aggregate attachment associated with a stop-loss plan is calculated as follows:
Step 1
The employer and the loss limit insurance provider estimate the average dollar amount of damages the employee expects per month. This value will depend on the employer’s estimate, but often ranges from $200 to $500 per month.
Step 2
Assume the stop-loss plan uses a value of $200. This value would then be multiplied by the stop-loss adjunct multiplier, which typically ranges from 125% to 175%. Using a damage estimate of $200 and a limited loss lien multiplier of 1.25, the monthly deductibility would be $250 per month per employee ($200 x 1.25 = $250).
Step 3
This deductible must then be multiplied by the employer’s record in the plan for that month. Assuming an employer has 100 employees in the first month of coverage, their total deductibility would be $25,000 per month ($250 x 100).
Stage 4
Registration may vary by month. Due to enrollment variance, global loss limit coverage may have a monthly deductible or an annual deductible.
Step 5
With a monthly deductible, the amount the employer must pay can change each month. With an annual deductible, the amount the employer must pay would be the sum for the year and is usually based on estimates from the initial month of coverage. Many loss-limit plans will provide an annual deductible that is slightly less than the 12-month deductible amount.
