How Stop-Loss Coverage Protects Your Organization


Commensurate with the increase of high-cost claims is an increase in the number of self-funded organizations that use stop-loss coverage for protection. But such coverage is most effective when care guidance is available to help companies use benefits optimally and productively. With that in mind, here’s how stop-loss coverage can protect your organization.

The Issue

Some 74 percent of self-funded organizations protect themselves with stop-loss coverage. What’s more, the number of employees who had annual claims exceeding $3 million doubled between 2016 and 2019.

What is Stop-Loss Coverage?

This is a kind of insurance policy that some self-funded companies carry that, through reimbursement, protects them against catastrophic medical costs.

Types of Stop-Loss Coverage

The two types of stop-loss coverage are specific stop-loss and aggregate stop-loss, and both have a broad range of variations. Here’s a brief description of each type:

  • Specific stop-loss: This type protects a self-insured organization against large-sized claims by a single person. Here, the organization is reimbursed when an individual’s claims are more than their deductible.
  • Aggregate stop-loss. This form caps the amount an organization could potentially pay in expenses on the whole plan, aggregately, during a contract term. With this kind of policy, the employer is reimbursed by the insurance carrier after the contract period for aggregate claims ends.

Specific Stop-Loss Coverage Example

In this stop-loss insurance coverage example, say an organization decides to put its per-person maximum liability at $100,000 for a policy year. If an employee claim surpasses that liability with total claims of $102,000, the company will be reimbursed for the $2,000 through the stop-loss policy.

Aggregate Stop-Loss Coverage Example

Here, the carrier determines the point at which the insurance carrier is liable. Generally, that point derives from employer plan enrollment and what’s called the aggregate attachment factor.

In one example of aggregate stop-loss coverage derivation, the organization and stop-loss carrier set the average expected monthly expected claims at $300 per employee per month (PEPM). Using a certain, somewhat complicated formula, the aggregate attachment factor is put at $450.

That factor is subsequently multiplied by the number of employees enrolled. Here, we’ll say that’s 1,000, which puts the total amount at $450,000 – the aggregate deductible for the month. If enrollment numbers stay the same for the year, the annual aggregate will be $5,400,000 – the organization’s maximum out-of-pocket claims. However, if claims reach $5,500,000, say, the stop-loss carrier will be liable for the $100,000.

Stop-loss Insurance with Care Guidance

While stop-loss insurance has become very important in terms of protecting self-funded organizations from huge medical and pharmacy claims, you also need expert care guidance.

Mercer, for example, offers a strategy that includes comprehensive coverage terms and a holistic review that assesses your existing plan and works to pinpoint and solve coverage gaps. The consultant also conducts clinical and operational performance evaluations of vendor partners and manages high-cost claim irregularities, services that compliment your coverage.

As well, care management services such as Mercer’s Health Advantage provide robust care management for employees whose healthcare needs are serious, chronic, or acute. Mercer claims that its approach can improve care quality while saving organizations an average of $430 annually for each employee.

As you now know, stop-loss coverage protects your self-funded organization by limiting risk and safeguarding you against lofty claims, allowing you to improve your bottom line by going around expensive, traditional insurance policies. If you go through Mercer for your stop-loss insurance, you get a comprehensive approach that can help you put in place the appropriate care and claims management strategy that your organization needs.