Health insurance policies are specifically designed to provide coverage for all the medical expenses the insured has. These policies have many clauses, one of these being a stop-loss provision.
What is a Stop-Loss Provision?
A stop-loss provision is a clause in the health insurance policies with a deductible and a co-insurance arrangement which says that policyholders do not have to pay anything more from their pocket once the expenses have reached the specific limit that is already indicated in the policy.
So in simpler words, it limits claim coverage for losses to one specific amount. It ensures that any catastrophic losses do not exceed the coverage limit and end up draining the financial reserves of a self funded plan.
It assumes the limit of the exact amount after which the insurance company will pay all the medical expenses. It’s like putting a limit on the deductible you will pay for the medical expenses you have.
For example, in a policy that has a $3500 stop-loss provision, the insured is no longer required to pay any more as part of their coinsurance percentage after they have paid the entire amount of $3500 in out-of-pocket expenses i.e. deductibles. This is also known as out of pocket stop-loss insurance.
Stop-loss insurance is used by employers in determining the coverage for risk against a high value of claims. It comes with a maximum level for claims and when the maximum threshold exceeds, the employer will no longer make payments and even go on to receive some reimbursements.
Stop-loss insurance can be added to an already purchased insurance policy or purchased independently. The threshold for the maximum claim limit is calculated based on a certain percentage of projected costs, also known as attachment points, which are usually 125% of anticipated claims for that year.
A stop-loss insurance threshold is usually variable instead of fixed. This is because the threshold tends to fluctuate according to the percentage of an employer’s current employees. The variable threshold is based on an important component in the calculation of a stop-loss level that is an aggregate attachment.
Like all high deductible plans, most stop-loss insurance policies will also have relatively low premiums. This is because the employer is usually expected to cover over 100% of the value of claims they receive themselves.
Stop-loss provisions in health insurance are provided for the company’s employees through a self insured plan that they often subscribe to in order to protect themselves from catastrophic claims or huge claims. Usually there is an annual limit set for stop-loss amounts for each participant it covers along with an aggregate amount set for each policy year. The premium is then calculated for each month of the year. The premium for the participants of the stop-loss amount is then based on the number of participants, age of the participants and various other information.
Moreover, the coinsurance requirement for any stop-loss insurance carriers will continue until you reach the stop-loss point after which you will not be responsible to pay 20% of an indefinite amount like you would have had to before reaching the stop-loss point. The stop-loss point for each insurance company varies and could be reached at any amount. It is also a contributing factor in the policy’s premium. Your premiums are likely to be low the higher the stop-loss is. So if you want to keep your premiums at a low, you should have a high stop-loss and high deductible along with a low coinsurance.
Aggregate Stop-Loss Insurance Calculations
The aggregate attachment associated with a stop-loss plan is calculated as follows:
The average dollar value of claims expected by an employee per month will be estimated by the employer and stop-loss insurance provider. This often ranges from $200 to $500 per month, however, it mostly depends on the employer’s estimate.
Assuming that the stop-loss plan has a value of $200 which would then be multiplied by the stop-loss attachment multiplier. It ranges from 125% to 175%.
The monthly deductible per month per employee would then be $250, using a claims estimate of $200 and a stop-loss attachment multiplier of 1.25. ($200 x 1.25 = $250).
This deductible must then be multiplied by the employer’s plan enrollment for the month. Assuming that an employer has 100 employees in the first month of coverage, their total deductible would be $25,000 for the month ($250 x 100).
Enrollment can typically vary per worth due to which, the aggregate stop-loss coverage will either have a monthly deductible or an annual deductible.
The amount an employer has to pay with a monthly deductible could potentially change every month. However, the amount the employers would have to pay for the annual deductible would be summed for the year. It would also usually be based on estimates from the initial month of coverage. An annual deductible is offered by many stop-loss plans that is slightly lower than the total sum of deductibles over the course of 12 months i.e. a year.
Now that we are clear on what the purpose of a stop-loss provision in a health insurance plan is, it would be easier to buy a health insurance policy and read the fine print to figure out all you need to know about the various clauses in the policy.