Why Self-Funded Plans Need Stop-Loss Insurance

Stop-Loss Insurance for Risk Reduction

Employers typically carry stop-loss insurance on their self-funded health care benefit plans to reduce the risk of large individual claims or high claims for the entire plan. The employer self-insures claims up to the stop-loss deductible, above which claims will be reimbursed by the stop-loss carrier. There are basically two types of stop-loss insurance: individual/specific and aggregate.

Individual or Specific Stop-Loss Insurance

Specific stop-loss protects the employer against large, individual health care claims by applying a dollar “attachment point.” It limits the dollar amount an employer must pay on an individual participant’s claims each year. For example, if the attachment point is $40,000 per participant per plan year, after $40,000 is paid out on that individual in a plan year, the stop-loss takes over for the rest of the plan year. The attachment point’s dollar amount is dependent on the employer’s size and risk tolerance.

Aggregate Stop-Loss Insurance

Aggregate stop-loss insurance protects the employer against high total claims for the overall health care plan. The attachment point is typically 125% of all expected annual claims ($ amount). For instance, if the attachment point were $500,000, then the stop-loss insurance pays after $500,000 in overall plan claims is reached.

EmSpring has deep experience in self-funded plans and in benefit plan design. We can help you determine self-funding is the right fit for your company health plan, or if an insured plan makes more sense for your business.