What Is Aggregate Stop-Loss Insurance?
Aggregate stop-loss insurance is a policy designed to limit claim coverage (losses) to a specific amount. This coverage ensures that a catastrophic claim (specific stop-loss) or numerous claims (aggregate stop-loss) do not drain the financial reserves of a self-funded plan. Aggregate stop-loss protects the employer against claims that are higher than expected. If total claims exceed the aggregate limit, the stop-loss insurer covers the claims or reimburses the employer.
Key Takeaways
- Aggregate stop-loss insurance is designed to protect an employer who self-funds their employee health plan from higher-than-anticipated payouts for claims.
- Stop-loss insurance is similar to high-deductible insurance, and the employer remains responsible for claims below the deductible amount.
- The deductible or attachment for aggregate stop-loss insurance is calculated based on several factors including an estimated value of claims per month, the number of enrolled employees, and a stop-loss attachment multiplier which is usually around 125% of anticipated claims.
Understanding Aggregate Stop-Loss Insurance
Aggregate stop-loss insurance is held for self-funded insurance plans for which an employer assumes the financial risk of providing healthcare benefits to its employees. In practical terms, self-funded employers pay for each claim as it is presented instead of paying a fixed premium to an insurance carrier for a fully insured plan. Stop-loss insurance is similar to purchasing high-deductible insurance. The employer remains responsible for claim expenses under the deductible amount.
Stop-loss insurance differs from conventional employee benefit insurance. Stop-loss only covers the employer and provides no direct coverage to employees and health plan participants.
How Aggregate Stop-Loss Insurance Is Used
Aggregate stop-loss insurance is used by employers as coverage for risk against a high value of claims. Aggregate stop-loss insurance comes with a maximum level for claims. When a maximum threshold is exceeded, the employer no longer needs to make payments and may receive some reimbursements. Aggregate stop-loss insurance can either be added to an existing insurance plan or purchased independently. The threshold is calculated based on a certain percentage of projected costs (called attachment points)—usually 125% of anticipated claims for the year.An aggregate stop-loss threshold is usually variable and not fixed. This is because the threshold fluctuates as a percentage of an employer’s enrolled employees. The variable threshold is based on an aggregate attachment factor which is an important component in the calculation of a stop-loss level.
As is the case with high deductible plans, most stop-loss plans will have relatively low premiums. This is because the employer is expected to cover over 100% of the value of claims they receive.According to the Henry J. Kaiser Family Foundation 2018 Employer Health Benefits Survey, insurers now offer health plans with a self-funded option for small or medium-sized employers; these health plans incorporate stop-loss insurance with low attachment points.