Understanding Aggregate Stop-Loss Insurance
Aggregate stop-loss insurance is a crucial policy that limits claim coverage (losses) to a specific amount. This coverage plays a vital role in safeguarding a self-funded plan from the financial impacts of catastrophic or multiple high claims that could potentially deplete reserves. Should the total claims exceed the aggregate limit set, the stop-loss insurer steps in to cover the claims or reimburse the employer, offering a safety net for unexpected expenses.
Key Takeaways
- Aggregate stop-loss insurance shields employers who self-fund their employee health plans against unforeseen high claim payouts.
- Similar to high-deductible insurance, stop-loss insurance necessitates the employer to cover claims below the deductible amount.
- The calculation of the deductible or attachment for aggregate stop-loss insurance considers factors such as estimated monthly claim values, the number of enrolled employees, and a stop-loss attachment multiplier typically set around 125% of projected claims.
Understanding Aggregate Stop-Loss Insurance
Aggregate stop-loss insurance is crucial for self-funded insurance plans where the employer assumes the financial risk of providing healthcare benefits to employees. Unlike traditional fully insured plans with fixed premiums, the employer of self-funded plans bears the responsibility of paying for each claim as it arises. This arrangement is akin to acquiring high-deductible insurance, as the employer is accountable for claim expenses below the deductible amount.
Distinguishing itself from conventional employee benefit insurance, stop-loss insurance exclusively covers the employer and does not extend coverage to employees or health plan participants.
How Aggregate Stop-Loss Insurance Is Used
Employers leverage aggregate stop-loss insurance to shield against the risk of high claim values. This form of insurance sets a cap on claims, and when this threshold is surpassed, the employer is relieved of making payments and might receive reimbursements.
Employers can add aggregate stop-loss insurance to existing plans or procure it independently. The threshold is determined based on a percentage of projected costs known as attachment points, usually set at 125% of anticipated claims for the year.
The threshold for aggregate stop-loss insurance is not fixed but variable, adjusting according to the employer’s enrollments. This variable threshold hinges on an aggregate attachment factor crucial in determining the stop-loss level.
Similar to high deductible plans, stop-loss plans generally have low premiums because employers are expected to cover more than 100% of received claims.
As per the Henry J. Kaiser Family Foundation 2018 Employer Health Benefits Survey, insurers now offer self-funded health plans, incorporating stop-loss insurance with low attachment points for small to medium-sized employers.
Aggregate Stop-Loss Insurance Calculations
The computation of the aggregate attachment associated with a stop-loss plan follows a defined process:
Step 1
The employer and stop-loss insurance provider collaborate to estimate the average dollar value of claims expected per employee per month. This value, dependent on the employer’s projections, typically ranges between $200 to $500 monthly.
Step 2
Using a claims estimate of $200 and a stop-loss attachment multiplier of 1.25, assuming a value of $200 with a multiplier of 1.25, the resulting monthly deductible per employee equates to $250 ($200 x 1.25 = $250).
Step 3
This deductible amount must be multiplied by the employer’s monthly plan enrollment. For instance, with 100 employees in the first month of coverage, the total monthly deductible would amount to $25,000 ($250 x 100).
Step 4
Due to potential fluctuations in enrollment, aggregate stop-loss coverage may feature either a monthly or annual deductible.
Step 5
Employers with monthly deductibles may witness varying payable amounts each month, whereas those with annual deductibles will have the sum calculated over the year, often based on estimates from the initial month of coverage. Many stop-loss plans offer an annual deductible slightly lower than the sum of monthly deductibles over a year.