What Is Aggregate Stop-Loss Insurance?
Let me explain aggregate stop-loss insurance directly to you: it's a policy that caps claim coverage at a specific amount to prevent catastrophic or numerous claims from depleting the financial reserves of your self-funded health plan. If you're an employer with a self-funded plan, this coverage protects you against claims that exceed expectations. When total claims surpass the aggregate limit, the insurer steps in to cover the excess or reimburse you.
Understanding Aggregate Stop-Loss Insurance
You need to know that aggregate stop-loss insurance applies to self-funded plans where you, as the employer, take on the financial risk of providing healthcare benefits to your employees. In practice, this means you pay for claims as they come in, rather than a fixed premium to an insurer for a fully insured plan. It's akin to high-deductible insurance, where you're responsible for expenses below the deductible.
Stop-loss insurance stands apart from standard employee benefit insurance because it only protects you, the employer, and doesn't provide direct coverage to your employees or plan participants.
How Aggregate Stop-Loss Insurance Is Used
As an employer, you use aggregate stop-loss insurance to manage risk from a high volume of claims. It sets a maximum claim level, and once that's exceeded, you stop paying, potentially receiving reimbursements. You can add this to an existing plan or buy it separately.
The threshold is based on a percentage of projected costs, known as attachment points, typically 125% of expected annual claims. This threshold isn't fixed; it varies with your enrolled employees, using an aggregate attachment factor in the calculation.
Like high-deductible plans, these policies have low premiums because you cover more than 100% of expected claims yourself.
Important Note on Stop-Loss for Smaller Employers
Here's a key fact: According to the Henry J. Kaiser Family Foundation's 2018 Employer Health Benefits Survey, insurers now provide self-funded options with stop-loss insurance for small or medium-sized employers, often with low attachment points.
Aggregate Stop-Loss Insurance Calculations
- Step 1: You and the provider estimate the average monthly claims per employee, typically ranging from $200 to $500 based on your data.
- Step 2: Multiply that value by the stop-loss attachment multiplier, usually 125% to 175%; for example, $200 times 1.25 gives a $250 monthly deductible per employee.
- Step 3: Multiply this by your monthly enrollment; with 100 employees, that's a $25,000 total deductible for the month.
- Step 4: Since enrollment can change, the deductible might be monthly or annual.
- Step 5: Monthly deductibles fluctuate, while annual ones sum up yearly estimates, often slightly lower than 12 months of monthly totals.
