How stop-loss insurance can reduce the risk involved in self-funding

As more businesses look at self-funding as a way to control their health care costs, it’s not uncommon for stop-loss insurance to be part of the discussion. In fact, according to a recent study from QBE Solutions, 60 percent of self-funded employers now have stop-loss insurance.

While some businesses choose to forgo stop-loss to avoid the extra monthly premium costs that come with it, many others have determined it’s a necessary measure to protect their business from unexpectedly high claims.

“Organizations assume more risk when they self-fund, but most want safeguards in place to protect their business,” says Amber Hulme, Medical Mutual regional vice president for Central Ohio. “While insurance carriers have set products to offer, there is also typically a fair amount of customization involved in terms of the contract. It’s important to get all the pieces right.”

Smart Business spoke with Hulme about how stop-loss insurance works, why it could be a valuable tool for organizations that fund their own health benefits and what types of contract decisions could make a big difference in the long term.

What is stop-loss insurance?

Stop-loss insurance limits risk for a self-funded employer when one employee has a catastrophic claim, as well as when claims for the entire organization are higher than a set amount. It insures the employer, not employees or other health plan participants.

Stop loss policies are initially written as indemnity policies. In others words, the employer pays the claim and the carrier then reimburses them.

How does it work?

Well, there are two types of stop-loss insurance — specific and aggregate. Specific stop-loss limits the amount an organization would have to pay for an individual claim from a specific employee. Usually an organization pays a monthly premium based on how many covered employees it has.

Aggregate stop-loss limits the total amount the organization will have to pay in claims, for all of its employees for the full length of the contract.

Most choose to have both types of stop-loss insurance to cover both scenarios.

Why is stop-loss getting more attention lately?

One reason is because self-funding is getting more attention, especially for small businesses that have 50 or fewer employees. In 2018, those businesses may lose the transitional or ‘grandmothered’ status that has kept them exempt from many aspects of the Affordable Care Act.

Stop-loss insurance is one of the most crucial elements of a self-funded health plan, because it’s the best way to help the plan limit its risk. So, as more organizations take on the financial risk of self-funding their employees’ health care coverage, stop-loss will continue to be a critical component.

What factors should organizations consider?

There are several contract provisions that organizations need to understand and take into account.

One of the most important aspects involves a practice called lasering. When insurance companies give a quote or a rate renewal, they might place a higher deductible on certain individuals or even exclude them from coverage. That’s called lasering. Organizations need to understand their insurer’s policies on lasering, and how it might affect their coverage when it’s time to renew their contract.

Is there anything else to consider?

One of the biggest factors in stop-loss, and self-funding as a whole, is to know your population. Most insurance companies need to know about any employees with a history of high claims or any known health risks before they will even give a quote. It’s a good idea for organizations to be prepared with that information ahead of time.

There are various types of stop-loss coverage available, so start by talking to your insurance carrier or other stop-loss carriers to find out which options make the most sense.

Insights Health Care is brought to you by Medical Mutual