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Blog, Healthcare Costs
December 16, 2022

Benefits of Stop Loss Insurance

4 minute read
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If you’re one of the many employers fed up with outrageous healthcare prices and skyrocketing health insurance premiums, you’ve likely considered switching to a self-funded healthcare plan—if you haven’t already.

Savvy business leaders know that self-funded healthcare plans can provide significant savings on annual healthcare expenditures without affecting their employees’ quality of care. However, they are also aware that being responsible for healthcare payments could put them at severe financial risk if an employee suffers a catastrophic illness or injury.

Luckily, complementing self-funded plans with stop-loss insurance will help mitigate the financial risk of disastrous medical expenditures. But stop-loss insurance comes with other perks as well. This article will discuss some of the best stop-loss insurance benefits.

What is Stop-Loss Insurance?

Stop-loss insurance is corporate-level coverage purchased through a secondary carrier. When paired with your company’s healthcare coverage, it can prevent ruinous financial losses. Sometimes called re-insurance, it caps the expenses employers must pay for medical bills.

A critical component of any self-funded healthcare plan, stop-loss insurance protects employers from being responsible for medical emergencies that could be too expensive to cover. In self-funded healthcare plans, employers pay providers directly for services. If an employee suffers catastrophic injuries or contracts a life-threatening illness, that means their employer would be on the hook for medical charges that may exceed the company’s ability to pay.

For example, if an employee requires heart surgery, employers could be looking at medical bills of over $80,000 according to The Commonwealth Fund. A stop-loss insurance plan places a negotiated cap, or deductible, on what employers are responsible for paying. If the employer in this scenario had a stop-loss insurance plan that took effect after $30,000, the stop-loss carrier would reimburse them for the medical expenses above the policy deductible.

There are two types of stop-loss insurance plans:

  • Individual stop-loss. Often referred to as specific stop-loss, this type of plan covers claims for one specific employee, their spouse, and dependents on an individual basis.
  • Aggregate stop-loss. This type of stop-loss insurance covers a specified group of employees when the claims exceed a designated annual threshold.

It’s important to note that most companies can benefit from combining both strategies to guarantee effective risk management. Using individual stop-loss plans for more risk-prone employees or those with compromised health and aggregate stop-loss works as a blanket plan for all employees’ incurred losses..

For example, a company with employees working in some construction sectors may be at a higher risk of injury than others. This company would benefit from an aggregate stop-loss plan for a specific group of employees.

The Best Stop-Loss Insurance Benefits

While it’s easy to see that stop-loss insurance is a must for employers with self-funded healthcare plans, there are some additional benefits to stop-loss insurance—beyond putting a cap on healthcare spending—that employers should know.

Flexibility

While the distinction between the two types of stop-loss insurance is clear, employers should still consider adding both in some capacity. Flexibility doesn’t just apply to medical conditions, it may also refer to the nature of the work itself, the working environment, or specific employee roles within a company.

Lasering

While stop-loss plans are designed to prevent employers from suffering major financial losses due to catastrophic medical claims, one or two high stop-loss claims in an aggregate plan can drive up premiums for the entire group. Using individual stop-loss plans with a higher deductible for individuals with health issues or at greater risk of health issues is called lasering.

Employers will be responsible for more day-to-day medical services by paying the higher deductible. However, lasering can also protect employers from being responsible for higher premiums if an employee has a history of serious medical issues. Managing the health of high-risk employees can be like walking a tightrope, but stop-loss gives employers options.

Stop-Loss Captives

Small and mid-sized employers have the option of coming together and contributing to a single pool of funds to share a layer of predetermined risk among a larger group of covered employees. The employers are free to draw from the pool of funds when they have a claim while they remain in charge of their own stop-loss insurance plans.

If any funds are left over after the annual contract ends, they can be returned. This means that those participating in stop-loss captives are less likely to waste money on premiums.

TPA and Broker Relationships

Third-Party Administrators (TPAs) and brokers can provide a necessary layer of rigidity for organizations transitioning to self-funded plans. Employers may be worried about losing the kind of support that comes with private health insurance plans. After all, insurance providers typically handle most of the claims processing in their role as middlemen between employer and healthcare provider.

However, when employers switch to self-funded plans and add stop-loss insurance, TPAs take over many of the support roles that health insurance companies offer. They can assist with processing claims, insurance, health plan development, employee onboarding, and other support services. Experienced TPAs and insurance brokers can act as liaisons between providers, employers, and employees.

As you can see, there are many benefits of stop-loss insurance. However, the first step of a good stop-loss insurance plan is a good self-funded healthcare plan. You’ll want to make sure you partner with an expert in self-funded medical coverage to maximize your potential savings.

How 6 Degrees Can Help With Self-Funded Plans

At 6 Degrees Health, we do not sell health insurance. Instead, we offer an array of cost-containment solutions designed to lower healthcare costs and bring greater transparency to the traditionally opaque healthcare reimbursement process. Our full suite of cost containment solutions can lower your healthcare spend by up to 40%.

Our reference-based pricing (RBP) solution offers self-funded plans an alternative to the costly traditional network-based healthcare models. When combined with an effective stop-loss plan, your organization can control overall healthcare spend and protect itself from unpredictable medical disasters.

Want to learn more about stop-loss insurance benefits? Speak to a representative today to find out how our reference-based pricing model can help you realize the true benefits of healthcare.

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