Stop Loss Insurance

Health and Benefits

Stop Loss Insurance: Critical Coverage for the Catastrophic

We’ve seen a trend in more high-cost claims ($1 million or more) in the past several years — a trend that shows no sign of letting up. This has many downstream repercussions beyond just rising health care costs for employers and employees. What are the reasons for these high-cost claims, and how can employers use stop loss insurance to cover them?

Health is truly priceless. But employers know health care is not.

Stop loss insurance is used by companies with self-funded benefits programs to protect them from huge losses. These losses come in the form of catastrophic medical claims, like neonatal complications, transplants, and cancer.

But with these conditions rising in cost and frequency, “catastrophic” claims are no longer reserved for the occasional medical emergency. They’re increasingly filed for top-tier drugs used to treat chronic diseases, serious birth defects, and other medical conditions that are sadly becoming more and more routine. Faced with this reality, employers need to be prepared to cover claims well in excess of $1 million — something that could cripple a small or midsize employer if they don’t have stop loss insurance in place.

How should I cover high-cost claims?

There are two ways of covering high-cost claims: by self-insuring or fully insuring. If you self-insure, you can retain 100% of the risk within your employee benefits budget, or transfer some of the risk by purchasing stop loss coverage to cover high-cost claims. The vast majority (96%) of self-funded employers with 500–1,000 employees cover claims with stop loss.

You can obtain stop loss coverage from the claims administrator (“carved in”) or from a third party (“carved out”). Carving out is the more prevalent choice, with between 55%–70% of employers with 1,000 employees or fewer choosing to carve out.

Note that the decision to purchase stop loss, and the level at which you purchase it, should be a joint decision between HR and finance, as this has real impacts on both the benefits budget and overall cash flow.

 

Daniel Davey
Stop Loss Specialty Practice Leader

 
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