Medical Stop Loss Insurance

Although an employer may be able to forecast "normal" claims experience reasonably accurately, it is far more difficult to predict the occurrence of less frequent, catastrophic claims such as multiple premature births, organ transplant and debilitating diseases. Often, the cost of claims associated with these conditions are extremely high. To protect plan assets from these infrequent, high cost claims, employers will purchase stop loss insurance.

Stop loss insurance (also called excess loss insurance and sometimes reinsurance) provides protection against catastrophic or unpredictable costs. Under a stop loss policy, the insurance company reimburses the employer for legitimate health claims that exceed certain limits.

Medical stop loss insurance comes in two forms: specific and aggregate.

Specific (also called individual) stop loss is the form of excess risk coverage that provides protection for the employer plan against a high claim on any one individual.
Specific stop loss protects the employer against catastrophic claims by single individuals that exceed a dollar limit (the specific deductible) chosen by the employer.
A specific deductible is based on an employer's size and risk tolerance and can range from $25,000 to $350,000 or more. Once the specific deductible is satisfied the employer is eligible to be reimbursed for additional ("excess") costs.

Aggregate stop loss provides a ceiling on the total dollars that an employer will pay during a year. The insurer reimburses the employer after the end of the year for total claims above a determined amount.

Specific and aggregate stop loss coverages are often purchased together. As employers become more comfortable with self-funding and become large enough to fund various levels of catastrophic claims, they will sometimes drop aggregate coverage.