Page 5 - The Value of Self-Funding

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Stop-Loss Coverage
Specific stop-loss coverage is purchased to limit the plan’s financial exposure on any one individual and/or
aggregated claims experience. The exposure (i.e., specific deductible) should be a function of the company’s size,
risk tolerance, financial resources, location, benefits plan, PPO network and claims experience.
Stop-Loss Contract Types
When an employee is covered by a fully insured plan and incurs a claim during the effective period of the contract,
the employee simply submits the claim to the insurance carrier, and either the employee or the provider is paid the
benefits due. This is known as an “incurred” contract.
A stop-loss contract operates differently because it is actually insuring the employer and not the individual employee.
When a plan is self-insured, the stop-loss contract insures the employer against catastrophic losses under the plan.
The medical plan established by the employer accepts the responsibility for paying providers’ claims for individuals
but limits its risk with stop-loss coverage. Individual employees are not personally insured by the stop-loss carrier.
The stop-loss contract used most often in the first year of a self-insured plan is known as “incurred and paid” or a
“12/12” contract. In order for an employer’s plan to be reimbursed for a claim covered by a 12/12 contract, the claim
must be incurred during the 12 months of the policy period and paid during that same 12-month period.
SPECIFIC STOP-LOSS COVERAGE
IS PURCHASED TO LIMIT THE
PLAN’S FINANCIAL EXPOSURE
ON ANY ONE INDIVIDUAL.
With specific coverage, the plan can file a specific claim at the time it pays for service. The premium for the
specific stop-loss coverage is expressed as a monthly rate, e.g., per employee, single, family, composite, etc.
EXAMPLE
Group stop-loss coverage w/$50,000 deductible An individual has claims that exceeds $50,000
Therefore, if the plan paid $300,000 in actual eligible claims...
Stop-loss carrier reimburses eligible claims paid out by plan in excess of the $50,000 specific deductible
Stop-loss insurance carrier reimburses the plan $250,000