While switching to self funding insurance comes with a wide range of benefits, there are also some serious risks. One major concern that many employers have pertains to the inability to pay for catastrophic claims. As employers are responsible for paying all incurred healthcare claims as they are presented, they must have the financial reserves available to make these payments. If an unexpected or catastrophic claim occurs, you may be worried about how you will pay it. Fortunately, there is a solution known as stop loss insurance that protects self-insured employers from large claims.
What is Stop Loss Insurance?
Stop loss insurance is a type of policy that offers protection for self funding employers. It is used to help companies protect themselves from high-cost claims via third-party coverage. When an employer is self-funded, stop loss insurance can help cover catastrophic claims in the case of specific stop loss, or numerous claims in the case of aggregate stop loss. This prevents large claims from negatively impacting a company’s finances. With stop loss insurance, if the total claim amount exceeds the limit set in your stop loss policy, the employer is reimbursed by the insurance carrier.
One of the main differences between stop loss insurance and traditional employee benefit insurance is that stop loss only insures the employer, not the employees. Oftentimes, stop loss coverage is written through a trust. The policy is then issued to the employer and the trustee acts as the policyholder. If an employer applies for stop loss and is accepted, he or she is participating in the trust. Once accepted for stop loss, employers are provided with a participation certificate that lists the benefits offered by the policy. Before applying for stop loss, be sure to carefully read the policy to ensure that you agree to the terms.
How Does Stop Loss Insurance Work?
Stop loss insurance is provided to employers on a reimbursement basis. Under a self-funded health insurance plan, employers are responsible for all claims, including claims that exceed the deductible. With stop loss insurance, once any losses have been paid, the employer is then reimbursed for any amount of the loss that exceeds the deductible. Reimbursements are paid directly to the employer. When a claim is submitted will depend on several factors. Specific claims are usually processed as soon as the deductible is met. However, aggregate claims are generally processed after the close of a contract period.
Under a stop loss insurance policy, businesses can elect for a maximum liability per person on a benefit plan. If a claim exceeds this amount, the employer is reimbursed for any excess amount. The maximum liability that an employer can take on typically ranges from $10,000 up to $1 million. Maximum liability per person is generally determined by employers and is based on the amount that the insurance carrier is willing to be liable for. With a specific stop loss policy, businesses are also able to receive insurance coverage for prescription and medical drugs.
There are two main types of stop loss insurance: specific stop loss and aggravate stop loss. Not sure which is right for you? In general, specific stop insurance is best suited for companies that are concerned about the large medical costs associated with a specific employee, rather than the entire staff. Aggregate stop loss is a better choice for companies who are more concerned about their overall healthcare costs, rather than the costs of just a single employee. An experienced benefits consultant can help you compare your options to determine which best fits your company’s needs.
What are the Benefits of Stop Loss Insurance?
Adding stop loss insurance to your self-funded insurance plan is a smart and savvy way to provide your company with an additional layer of financial protection. Stop loss insurance can be beneficial for larger businesses with sufficient funds, as well as smaller businesses that may lack adequate reserves. The advantages of stop loss insurance not only benefits employers, but also employees. As the cost of healthcare steadily rises, more and more employees are becoming dissatisfied with paying high contributions. Employers who are self-funded have been found to pay out less than employers who choose traditional health insurance and savings are often passed down.
An estimated 85 percent of self-insured employers with up to 5,000 employees have stop loss insurance. If you are a self-insured company, stop loss is a must-have. However, depending on your unique staff your risk may be higher or lower than others. For example, if your company is composed of young, healthy, and mostly unmarried individuals, there is a far less risk then if your workforce contains older adults or those with chronic health conditions. Keep this in mind when comparing different stop loss insurance policies.
Stop loss insurance allows employers to accept the benefits that come with self funding while also limiting the amount of risk that could come from a single catastrophic claim. Before you think that your company does not need stop loss insurance, consider the real possibilities. One person in your office could get the flu, making everyone else sick in a matter of days. Also consider that just one of your employees could be diagnosed with a serious long-term disease, such as cancer. Do you have the funds needed to cover extensive surgeries and treatments, such as chemotherapy?
Contact an Experienced Benefits Consultant
Whether you have already made the switch to a self-funded insurance policy or are considering self funding, you will no doubt want to invest in stop loss insurance. Stop loss is an invaluable tool that could help prevent you from ending up in financial ruin due to an unexpected employee injury or illness. You can also avoid the associated legal troubles that would likely arise if you were unable to pay your employee healthcare costs. Of course, you also do not want to lose your trusted employees by failing to provide the coverage they expect. For more information about stop loss insurance or for help finding a policy, contact a professional benefits consultant.