Aggregate stop-loss insurance is a type of insurance coverage that provides protection to self-insured employers or other entities against the risk of large cumulative claims over a specific period. In a self-insured or self-funded health insurance plan, the employer takes on the financial risk of paying employees’ medical claims directly, rather than purchasing a fully insured plan from an insurance carrier.
Here’s how aggregate stop-loss insurance works:
1. **Self-Insured Plans:**
– In a self-insured health plan, the employer assumes the financial responsibility for covering the healthcare expenses of its employees. Instead of paying premiums to an insurance carrier, the employer pays for the actual medical claims incurred by employees.
2. **Individual Stop-Loss vs. Aggregate Stop-Loss:**
– While individual stop-loss insurance protects against high individual claims for a single employee, aggregate stop-loss insurance provides protection against the total claims of the entire group of employees.
3. **Trigger Point:**
– Aggregate stop-loss insurance typically comes into effect when the total claims for the covered group exceed a certain threshold, known as the “attachment point” or “aggregate deductible.” This threshold is set in terms of a specific dollar amount or a percentage of expected claims.
4. **Coverage Limits:**
– Once the aggregate claims surpass the attachment point, the stop-loss insurance policy starts reimbursing the employer for the covered portion of claims above that threshold, up to the “aggregate limit” or “stop-loss limit.” The aggregate limit is the maximum amount the insurer will pay for the entire group’s claims during the policy period.
5. **Risk Management:**
– Aggregate stop-loss insurance helps self-insured employers manage the financial risk associated with unexpected spikes in healthcare costs. It provides a level of financial protection and budget predictability by capping the employer’s liability for aggregate claims.
– Employers pay premiums for both individual stop-loss and aggregate stop-loss coverage. Premiums for aggregate stop-loss insurance are influenced by factors such as the attachment point, aggregate limit, the size of the covered group, historical claims experience, and the overall health risk profile of the employees.
7. **Renewal Considerations:**
– The terms and conditions of aggregate stop-loss insurance, including attachment points and aggregate limits, are renegotiated at the time of policy renewal. Adjustments may be made based on the employer’s claims experience during the policy period.
By having aggregate stop-loss insurance in place, self-insured employers can gain protection against the financial impact of unexpectedly high overall claims costs. This type of insurance is an important risk management tool for employers choosing to self-fund their health insurance plans while seeking to control healthcare costs.