What is Stop Loss?
An important component of most employers’ self-funded plan strategy is the purchase of a stop loss, or reinsurance, policy to protect the plan against adverse risk. HNAS advocates the use of stop loss coverage so that the plan can reap all the benefits of self-funding, while still having the peace of mind that employer assets are safe from catastrophic claims.
Purchasing stop loss coverage is a decision rooted in the risk tolerance of each individual employer group. HNAS can assist brokers and employers alike in establishing appropriate risk trigger points for the plan. If desired, we can negotiate with our preferred partners to obtain quotes and place stop loss coverage.
There are two main types of stop loss coverage:
- Specific stop loss. When an individual participant on the plan exceeds the chosen dollar limit, specific stop loss reimburses for excess claims.
- Aggregate stop loss. When the entire plan exceeds the chosen dollar limit, aggregate stop loss reimburses for excess claims. With aggregate coverage, the carrier will determine the limit based on your group’s demographics, past experience and plan design.
You may hear references to various stop loss contract types—for example, “paid” or “12/15”. Different contract periods exist to meet employer’s different needs, mostly based on the concept of claims lag. Claims lag is simply the period of time between which a claim is incurred and a claim is paid. In addition, there are contract riders, like terminal liability or advance funding, that may be valuable for each employer’s particular needs.