Stop-Loss Insurance
What Does Stop-Loss Insurance Mean?
Stop-loss insurance is designed to protect an employer from significant financial loss due to medical claims made by employees. It works by covering medical expenses after the employer has reached a specified amount of spending. There are two types of stop-loss policies: individual and aggregate.
Insuranceopedia Explains Stop-Loss Insurance
If an employer chooses not to purchase group health insurance for employees, stop-loss insurance can help protect against significant financial loss due to medical expenses. This is achieved by setting aside a portion of the employer’s income for employee healthcare and purchasing a stop-loss policy. The employer and the insurance company agree on a fixed deductible amount. When an employee files a medical claim, the insurance company covers the costs that exceed the deductible. Self-funding a health plan is usually only practical for larger employers with enough reserves to handle unpredictable claim spikes, which is why smaller employers often stick with traditional group coverage or build protection into their business owner’s policy instead.
An individual stop-loss policy covers an employee’s medical claims that go beyond the agreed financial limit, while an aggregate stop-loss policy covers the total medical claims of all employees that exceed the deductible or financial limit. Employers weighing whether to self-fund with a stop-loss backstop often compare the total cost against fully insured options from health insurance providers before making a decision.
