Stop Loss Insurance
What is Medical Stop Loss?
Medical Stop Loss is an insurance product that provides protection against catastrophic or unpredictable losses. It is usually purchased by employers who have chosen to self-fund their employee benefit health plans, but do not want to assume 100% of the liability.
Traditional Stop Loss Insurance
Self-funded plans face the risk of a high number of claims and the risk of high dollar claims. Stop Loss insurance is made up of two types of coverage to address these risks – Specific and Aggregate.
Specific coverage provides protection when any member has high dollar catastrophic claims. It pays the difference whenever an employee’s accumulated cost exceeds the employer’s specific deductible.
Aggregate coverage provides a cap on the maximum exposure the Plan has. It pays the difference when the total paid claims under the specific deductible are added up and exceed the aggregate attachment point.
Both Specific and Aggregate coverage are available in the two different Contract types – Paid or Incurred.
Incurred: This is the date a service is rendered or a supply is provided.
Paid: This is the date the payment check is issued, provided it is promptly delivered to the payee and is paid upon presentation.
Paid Contract Types
- Paid (12/12): Coverage for claims that are incurred prior to the expiration date and paid by the expiration date.
- Paid (24/12):Coverage for claims that are incurred 12 months prior to the effective date and paid by the expiration date.
- Paid (18/12):Coverage for claims that are incurred 6 months prior to the effective date and paid by the expiration date.
- Paid (15/12): Coverage for claims that are incurred 3 months prior to the effective date and paid by the expiration date.
Incurred Contract Types:
- Incurred: Coverage for claims incurred between the effective date and expiration date regardless of when they are paid.
- Incurred (12/24): Coverage for claims incurred between the effective date and the expiration date and paid within 12 months after the expiration date.
- Incurred (12/18): Coverage for claims incurred between the effective date and the expiration date and paid within 6 months after the expiration date.
- Incurred (12/15): Coverage for claims incurred between the effective date and the expiration date and paid within 3 months after the expiration date.
- Incurred (12/12) Also known as immature contracts: Coverage for claims incurred and paid between the effective date and expiration date. This can expose the plan to run out liability with no stop loss coverage.
Aggregate Accommodation: An advance prior to the last month when the year to date paid claims under the specific exceed the year to date attachment point. This is an optional benefit.
Aggregate Deductible: The overall limit of claim liability for the employer.
Effective Date: The date when the stop loss coverage begins.
ERISA: Employee Retirement Income Security Act of 1974 is the basis of most employee benefits legislation. This federal law allows for and sets guidelines regarding a group’s ability to self-fund their benefits.
Expiration Date: The date the stop loss coverage ends.
Incurred and Paid: An expense both incurred and paid during the contract period and paid during the same contract period.
Incurred Claim: Refers to the accrual method of accounting for all known and unknown claims. Includes the paid claims plus adjustments for claims reported but not yet paid and those incurred but not yet reported.
Incurred Date: The date the covered service is rendered or the covered purchase is made.
Lag: The usual delay between the actual time a service is rendered or an item supplied and the time it is paid for and recorded.
Margin: The difference between expected paid claims and the aggregate deductible.
Plan Document: The master description of benefits under which the employer’s health and welfare plan is administered. This is the document that tells the Third Party Administrator (TPA) how to pay the eligible expenses and tells the stop loss insurer how to validate stop loss claims.
Specific Deductible: The dollar amount paid by an employer’s plan before the stop loss coverage will reimburse additional costs.
Terminal Liability: The claims that have not been paid prior to the expiration date of the contract but were incurred during the coverage period. This is also referred to as run out claims.
Specific Terminal Liability: Refers to the specific coverage.
*Aggregate Terminal Liability: Refers to the aggregate coverage.
*This coverage is optional at the time of sale and only available in the event the employer terminates the self-funded plan and elects a fully-insured plan.
Third Party Administrator: Refers to the third party or entity administering a plan (plan documents, paying claims, servicing).
Trend: The average percentage annual rate medical costs inflate.