Self-funding you company’s healthcare plan has a lot of upsides, including more flexibility, happier, healthier employees, and big potential savings. But one thing that can give businesses pause when they consider making the switch is the underlying financial risk. By taking on the responsibility to fund your employees’ healthcare, you’re ultimately putting yourself on the hook for all the claims that arise when your employees use their healthcare benefits. And as everyone knows, health and healthcare can be very unpredictable—just one member getting diagnosed with a chronic disease, for example, could mean expensive ongoing treatment that increases care claims significantly.
Now that we’ve walked through the basics, it’s time to dive into the complexity. Here are the key terms and concepts you need to know to get the full picture of how stop-loss works.
These terns refer to how deductibles and spending limits are set in your stop-loss contract. Contracts can include one or both kinds of coverage, depending on he company’s needs.
These two types of stop-loss coverage can work together to limit financial risk, but they reimburse different types of claims and never overlap. With specific coverage, you pay claims up to the individual deductible, and then the stop-loss insurer reimburses any excess. With aggregate coverage you pay all claims up to each individual’s deductible across the plan year. If total claims (excluding any amounts already reimbursed under specific coverage) go over the aggregate attachment point, the insurer reimburses the excess. You’re never reimbursed twice for the same dollar of claims. Specific and aggregate coverages complement each other—but always stay in their lanes.
So, how do stop-loss insurers actually assess your healthcare plan’s risk and set premiums? Like all underwriting, it’s a complicated process, but there are a number of common factors they’ll almost always consider:
Factors like these are combined using proprietary actuarial models to determine the underlying risk of a plan. From there, underwriters are able to set premiums and decide on appropriate coverage terms for your plan’s stop-loss insurance.
As we’ve seen, stop-loss can be a complicated topic, and there are lots of wrinkles to wrap your head around. Fortunately, self-funding companies don’t have to figure out stop-loss on their own—third-party administrators (or TPAs) can help you navigate the stop-loss journey from start to finish, steering you towards the right insurance partners, helping you negotiate contracts, and working with you and the stop-loss insurer to keep things running smoothly year to year.