Stop-loss insurance is coverage for businesses that self-fund or self-insure their own employee health benefit plans. Rather than paying premiums to an insurance company to cover health care expenses for employees, self-insured employers pay their employees' health claims and contract with companies to administer the health plan for each employee. Most large companies are self-insured.
Key takeaways
- Stop-loss insurance is a form of coverage for self-insured businesses that pay their employees' health claims.
- Specific stop-loss coverage protects against extreme losses for those covered by the plan.
- Aggregate stop-loss coverage protects employers when total claims by the entire group surpass a certain level.
- Stop-loss insurance indirectly benefits consumers by allowing employers to assume risks securely and provide health benefits to their employees and dependents.
What are the types of stop-loss insurance?
By self-funding their own plans, businesses take on the risk of their employees' healthcare expenses. Stop-loss insurance is a layer of protection in case health insurance claims exceed a certain threshold.
There are two types of stop-loss insurance--specific and aggregate coverage. Specific stop-loss insurance covers extreme losses for a person covered by the plan. Say, for instance, an employee has a catastrophic illness or injury and racks up extraordinary medical bills. The specific stop-loss coverage would kick in when the bills exceeded a certain level defined in the policy.
Aggregate stop-loss coverage protects employers when total claims by the entire group exceed a certain level, such as 125 percent of the cost of projected claims.
Although you never deal directly with stop-loss insurance as a consumer, the coverage provides an indirect benefit by enabling employers to take on risk safely and provide health benefits to their employees and dependents.
