What Is Stop-Loss for Self-Funded Insurance? - Zupnick Associates

(by: Eseoghene Andre and #lilac)

Updated July 2022

 

What Is It?

Stop-Loss Insurance, often mistaken to be excessive, is for self-funded employers, and protects the employer in the case of excessively unpredictable circumstances. It varies from regular insurance in that it… insures the insurance… Really, though. 

Specifically for self-funded employers, in a stop-loss policy, the insurance company assumes responsibility for losses that exceed a predetermined cap (whether this is paid in advance, or in aggregate). 

Who Benefits From Stop-Loss Coverage?

In the very relatable situation where a CEO finds themselves weary of the possibility of endless claims that surpass the business’s standard coverage options, stop-loss is one of the surest answers. 

Stop-loss insurance is essentially a supplementary layer of protection that an employer buys in order to safeguard itself from paying healthcare expenditures that exceed the self-funded plan’s permitted covered charges.

  • For instance, an employer purchases $20,000 worth of health insurance per employee. If an employee gets a medical emergency necessitating intensive surgery that costs $25,000, the group health insurance will only cover $20,000. The rest of the medical bill, $5,000, will be covered by stop loss insurance.

Yes. Stop-loss coverage could cover that great a difference. 

This is why stop-loss self-funded insurance is a great option for employers seeking to improve their retention, too!

Losses Prevented by Stop-Loss 

Stop-loss insurance not only benefits you, as the employer, by shielding you from the financial consequences of catastrophic claims, it also shields you from year-to-year premium fluctuations that could sometimes mean detriment for your business. 

Furthermore, being caught in a game of chasing your own tail of claims can trample employee morale. Even the best of employers can’t keep company financial crises on the DL. With stop-loss protection in place, your employees will enjoy the lowest possible premium adjustments, and usually zero changes in the out-of-pocket costs. 

Consistent protection remains one of the most appealing incentives to top talent.

Choosing Wisely

Though we hope it doesn’t need to be said, we’ll iterate that it’s critical to choose your stop-loss insurance carrier carefully. More often than not, it’ll end up being a carrier you’re either already working with, or a carrier you’re familiar with. But of course, your business insurance broker would be your best bet when it comes to taking advice on purchasing or switching your insurance carriers. 

Until then, let’s learn a couple terms, shall we?

Stop-Loss Insurance Terms to Know

Did you know about “lasering”?

  • Lasering”, a term for the stop-loss practice of raising an individual’s premiums or deductibles based on a history or likelihood of higher (or more frequent) claims by the individual, would be touted as beneficial and positive. One of the main reasons for its promotion is that it will keep the group’s average lower, to isolate the individual with medical “red flags”. 

However, this practice becomes nefarious when it is applied to a large employee-base, and doesn’t account for individual exceptions. Not to mention it completely eradicates any notion of equality among the employees, creating a foundation of employee morale that’s rotting from within. 

It is highly recommended to get stop-loss coverage for employees with zero “lasering” articulated in the agreement. 

How about ASO? Administrative Services Only. 

  • The administrative services involved in processing the policies, as well as the claims, for employees of large employers is more than a full time job; it’s a full time job for a fully-staffed team of employees. ASO plans for self-funded employers insure the independent coverage, without losing the compliance and organization of processing all of it with one third-party group. 

This is the kind of thing you do want, when expanding with Stop-Loss. 

In Conclusion 

When all the basic group health and insurance coverage needs for your employees have been taken care of, don’t dismiss Stop-Loss as unnecessarily excessive. It may not be the mandatory basic, but it could end up saving you more than apathetic compliance does, in practice. 

If you’re not 100% sure that you’re as protected as you’d like to be, OR if you think a better bottom line exists out there, you’re probably right in both cases. Let’s talk!

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