Judy Pershern

Many small and medium sized employers are considering offering a self-funded health plan with stop loss insurance coverage. 

Stop loss coverage is a type of insurance policy that protects against catastrophic medical expenses.  With self-funding, the employer’s health plan retains the financial obligation to pay all medical claims. However, the stop loss insurance policy protects against claims expenses that exceed a predetermined amount. This predetermined amount marks the point at which the excess medical claims are covered by the stop loss insurance coverage.

There are two types of stop loss coverage:  specific stop loss and aggregate stop loss.

Specific Stop Loss Coverage

Specific Stop loss coverage is also known an individual stop loss.  Specific stop loss insurance protects against unusually high claims attributed to a single person.  Under specific stop loss coverage, the employer will be reimbursed when claims for a single person exceed a specific deductible (also known as specific stop loss attachment point).

Aggregate Stop Loss Insurance

This type of stop loss insurance covers the total claims of all covered employees and their dependents in a plan year.  If the total paid claims exceed the contractual aggregate stop loss limit, the stop loss carrier will reimburse the employer for the excess medical expenses.    For example, if several employees during the same plan year incur medical expenses related to a major disease or illness, the total group health plan claims expense will be capped at a certain amount and any expenses in excess of the contracted limit are covered by the stop loss insurer.

There are many different stop loss coverage options and industry specific terms.  Some examples are:

  • “12/12” Contract: Claims must be incurred and paid during the plan year.
  • “12/15” Contract:  Claims must be incurred during the plan year and paid either during the plan year or during the three months following the end of the plan year.
  • “15/12” Contract: Claims may be incurred in the three months prior to the beginning of the plan year or during the plan year and paid during the plan year.
  • Deductibles or Attachment Points: The limit at which the insurance company is responsible for reimbursing the medical claims.
  • Lasering: An insurance carrier can place a higher deductible on certain individuals or exclude them from coverage.

It is important to take the time to understand the terms of the stop loss policy and how the contract terms  will affect the coverage provided.   It is also important to understand the termination provisions and how coverage for run-out claims will be provided following termination. The Stall Legal attorneys can assist in your evaluation of stop loss coverage that you may be considering.